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Fa 6-7

This document provides an overview of the income statement, which shows a firm's financial performance over a period of time. It discusses key income statement components such as revenues, expenses, net income/loss, gross profit, operating expenses, depreciation, interest, taxes, and earnings per share. The income statement classifies items as revenues or expenses, and the difference between the two is net income/loss. It also introduces accounting concepts relevant to the income statement such as the accounting period, realization, matching, consistency, and materiality concepts. The document includes examples of common income statement line items and calculations like cost of goods sold, EBITDA, operating profit, profit before tax, and basic/diluted earnings per share

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28 views10 pages

Fa 6-7

This document provides an overview of the income statement, which shows a firm's financial performance over a period of time. It discusses key income statement components such as revenues, expenses, net income/loss, gross profit, operating expenses, depreciation, interest, taxes, and earnings per share. The income statement classifies items as revenues or expenses, and the difference between the two is net income/loss. It also introduces accounting concepts relevant to the income statement such as the accounting period, realization, matching, consistency, and materiality concepts. The document includes examples of common income statement line items and calculations like cost of goods sold, EBITDA, operating profit, profit before tax, and basic/diluted earnings per share

Uploaded by

avinash singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Financial Accounting

(PGDM: 2022-24)

Sessions - 6&7: Income Statement

Sriranga Vishnu
Faculty (F&A Area)
Income Statement- Introduction
• Income statement shows the financial position of a firm
during a period– flow statement

• It provides a measure of operating performance of a firm


by presenting the entity’s revenues, expenses, gains,
losses and net income for a period of time

• The data are classified into - Revenues and Expenses

• Revenues – Expenses = Net Income


• Expenses – Revenue = Net Loss
Income Statement- Introduction
• Revenues: Inflows of assets or settlement of liabilities
from producing goods, providing services, or other
activities that are central operations of the firm. Leads to
increase in retained earnings of the firm

• Expenses: Outflows of assets or incurrence of liabilities


from producing goods, providing services, or other
activities that are central operations of the firm. Leads to
decrease in retained earnings of the firm

• Operating revenue is the one that arises from main


operations of the firm, and the revenue arising from other
activities is called non-operating revenue
Income Statement- Introduction
• Income: Revenues – Expenses = Income
• It is also known as Profit / Net Income / Net Earnings

• Cost: It is the amount of resources used for some purpose

• Expenditure: It’s a decrease in asset or increase in liability

• Expense: An item of cost applicable to the current


accounting period

• Disbursement: It is payment of cash


Income Statement- Components

• Cost of Sales – Costs related to purchase of materials and


their conversion into finished products

• Gross Margin – Difference between Revenue and CoGS

• Operating Expenses – Expense of operating nature (SGA)

• Operating Income – Gross margin less Op. expenses

• Other Income – Non-operating sources of income


• Depreciation – Reduction in value of an asset with time
Income Statement- Components

• Interest Expenses

• Provision for Income Tax

• Net Profit – Also known as net earnings

• Appropriations
– Retained Earnings

– Dividends
Income Statement- Components
• Earnings per share (EPS) – It is the portion of a company's
profit allocated to each outstanding share of common stock.
Earnings per share is an indicator of company's profitability

• Basic earnings per share – Calculation of EPS by dividing


net income less any preferred stock dividend by weighted-
average number of common shares outstanding

• Diluted earning per share - Calculation of EPS by dividing


net income by weighted-average number of common shares
and assuming that options, warrants, convertible bonds,
etc., that decrease EPS , are exercised or converted to stock
Concept of Profit

• Revenues – Expenses = Net Profit


• If Expenses – Revenue = Net Loss
• Gross Profit = Sales – Cost of Goods Sold (CoGS)
• EBITDA= Earning before Interest, Tax, Depreciation and
Amortization
• Operating Profit (EBIT) = GP – Op. Exp. – Depr.
• PBT= Profit before tax = PBIT – Interest
• PAT = Profit after tax = PBT – Tax = Net Profit
Income Statement- Concepts

• Accounting Concepts -
 Accounting Period Concept – Periodic evaluation of
financial health of a firm
 Conservatism Concept – Prudence and healthy skepticism
 Realization Concept – Revenue is earned only when goods
are transferred
 Matching Concept – Revenue and Expense should match
 Consistency Concept – Uniformity of method/ policy
 Materiality Concept – Full disclosure of transactions
Sample Income Statement

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