Basic Accounting:
A Sample Income Statement

In this series of articles, we're going to take a look at the Income Statement, why we use it, and what we learn from it.  The income statement is the first completed financial statement in the complete package of Income Statement, Balance Sheet, Owner's Equity Statement and Statement of Cash Flows.  In many ways, much of the information we put together for the other statements, is a direct result of the information given on the Income Statement.  For this reason alone, the importance of the Income Statement cannot be overstated; but there are other reasons for the significance of the Income Statement and the important role it plays.

For purposes of clarity, there is a sample Income Statement below, and as we progress through this series, we will use this sample for reference.

There are 10 articles in the series on the Income Statement:

  1. A Sample Income Statement
  2. How To Prepare an Income Statement
  3. Reading an Income Statement
  4. Format of the Income Statement
  5. Income Statements and the Owner Equity Statement
  6. The Importance of the Income Statement
  7. Income Statements and Budgets
  8. The Balance Sheet and the Income Statement
  9. The Income Statement and Investor Information
  10. The Income Statement and the Statement of Cash Flows

The Income Statement is a direct result of the information that is recorded in the journals and ledgers, and then transformed into concise, compiled revenue and expense figures.  It is usually prepared directly from the monthly "closing of the books" and provides an accurate picture of the revenue and expense of the business for a specified period of time; usually a month, quarter or year.  The Income statement is used by management within the company, but also by investors and creditors outside the company to evaluate profitability, performance and aid in the assessment of risk for the investor or creditor.

One individual report, with one basic analysis can never provide the "big" picture that we seek when we begin to assess a company or business, but the Income Statement is one of the initial places of business profit and loss reporting; this makes the case for the belief that accurate initial information, helps a business or company stay on track and maintain financial health.

The sample Income Statement below is what is known as the single-step format, and is the most easily read format.  We will take a look later at the single and multiple step formats, and how to dissect the different information contained within each one.

SAMPLE STATEMENT

           

Happy Travel Court

 
 

Income Statement

   

For the Month Ended March 31, 2005

 
           

Revenues

         

     Rental Revenue

   

$65,000

 

Operating Expenses

       

   Advertising

$5,310

     

   Wages

 

$30,500

     

   Utilities

 

$1,080

     

   Depreciation

$800

     

   Repairs

 

$4,260

     

   Insurance

$600

     

   Interest

 

$100

     

   Supplies

$3,900

     

     Total Operating Expenses:

$46,550

   

Net Income:

   

$18,450

 
           

As you can see, the format, along with the compiled information contained in the statement is not that complex.  The complexity of the Income Statement lies in the comparison of the reports, the horizontal and vertical analysis that is often done on the information, and our ability to absorb that information, and put it into practical application for business assessment and investment purposes.


Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.