What is the income statement?
What are the income statement headings?
What is the purpose of the income statement?
1. What do we mean by the income statement?
The income statement is an accounting document among the summary statements, it is composed of all the expenses consumed, and the products generated during the accounting year, in order to give a net result, which summarizes the financial situation of the company and its profitability.
2. What is the function of the income statement?
The income statement allows us to present useful information in order to follow the economic evolution of the company, and to know the achievements of its achievements, in particular if it has made profits or losses.
This document is very key for investors to assess the profitability of the company. It is also used for tax administration since the tax is based on profit.
3. Income statement headings?
The income statement is the aggregation of 3 results:
has. The operating result:
The operating result is the result that corresponds to the current activity of the company. It makes it possible to measure the performance of the company for its operational part. It is calculated as the difference between operating income and operating expenses.
The operating result = The operating income – The operating expenses.
Operating income is all sales of goods or services, finished products, stored or sold.
Operating expenses are expenses relating to the company's current activity. These are all the expenses that the company incurs to operate its operations, such as raw materials, rents, water and electricity, depreciation allowances, etc.
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b. The financial result:
The financial result is the net result of all the financial transactions carried out by the company during the financial year. Whether financial operations relating to medium and long-term financing or short-term cash management operations, all these operations generate financial expenses or income which form a financial result of the company. .
The financial result = the financial income – the financial charges.
Financial income is all income generated by equity securities, fixed securities held by the company, as well as income generated by the sale of marketable securities. In summary, it is income from investments and financial investments.
Financial charges are charges that relate to all operations aimed at collecting the financial resources necessary to finance the company's activity. These are expenditures in return for either internal capital contributions by the partners or external ones such as banks and other financing establishments. Naturally, interest on borrowings is included.
vs. The non-current result:
Non-current (or exceptional) income reflects the net situation of all non-current transactions. This is the impact of exceptional events on the company's results.
Exceptional result = Exceptional income – exceptional charges
Non-current products are products that have no connection with the company's current activity or financial activity.
Non-current expenses are current non-operating expenses of the company. Several unusual events can be the cause of these charges, such as late payment penalties, surcharges, debts that have become irrecoverable, etc.
4. The purpose of the Income statement:
The income statement gives an idea of the performance of the company and its profitability. It serves as the basis for any in-depth analysis of the composition of the result, of the various financial ratios, etc.
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5. What to do with the profit of the business?
When the company makes a profit, it has 3 ways to allocate it:
Dividends: dividends are a sum of money paid to partners as the result of their investment.
Reserves: whether it is a legal reserve required by law, statutory reserves, required by the articles of association or optional reserves, they all serve to strengthen the company's equity.
Retained earnings: If the profit is not paid out in the form of dividends or allocated to reserves, it can be repprted in future years, housed at the level of shareholders' equity. The retained earnings remain free for any subsequent allocation, to reserves or dividends.
6. What is the difference between expenses and fixed assets?
A fixed asset is an expense that is not entirely consumed in the first financial year, it is durable. On the other hand, an expense is an expense consumed and used during the financial year.