The income statement is a key financial document that reports a company's performance over a specific period, detailing revenue, expenses, and net income. It includes components like revenue earned from sales, cost of goods sold, and various expenses, along with insights into company operations and management efficiency. A step-by-step tutorial is provided for creating an income statement using a template, including adjusting periods, inputting numbers, and reviewing calculations.

1. Income Statement
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2. The income statement is one of the three important financial statements
used for reporting a company’s financial performance
An income statement is a financial statement that reports a company's financial performance over a
specific accounting period. It is one of the three important financial statements used for reporting a
company’s financial performance, the other two being the balance sheet and the cash flow statement. The
income statement focuses on the revenue, and expenses reported by a company during a particular
period. It provides valuable insights into a company’s operations, the efficiency of its management,
underperforming sectors, and its performance relative to industry peers.
The income statement is also known as the profit and loss (P&L) statement or the statement of revenue
and expense. It starts with the details of sales and then works down to compute net income and eventually
earnings per share (EPS). The income statement does not differentiate between cash and non-cash
receipts (sales in cash vs. sales on credit) or cash vs. non-cash payments/disbursements (purchases in
cash vs. purchases on credit).
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3. The income statement has three primary components
Revenue
The money earned by the company
which includes:
• The sale of goods and services
• The interest earned
• Some investment activities
Expenses
The Money spent to generate revenue
which includes:
• Cost of Goods Sold (COGS): The direct
costs attributable to the production of the
goods sold by a company
• Selling Expenses: Cash payments (or
equivalent) for marketing services
• Administrative Expenses: Costs to the
firm to cover items such as salaries
• Interest Expenses: Payments made to
cover costs of financing
• Tax Expense: Payments made to the
government to cover income taxes
• Depreciation Expenses: Amount of asset
usage that is applied to this year
Net Income
Net Income is referred to as “Profit” or
“Earnings,” when not negative and
“Loss” when negative.
It is the company revenues minus its
expenses
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4. Key income statement items
Revenue is the total amount of money a company earns from its operations, usually from the sale of goods or services. For example, a car
manufacturer’s revenue would be the total amount of money it earns from selling cars.
Cost of Goods Sold (COGS) represents the direct costs associated with producing or delivering the goods or services sold by a company. In the
auto industry, COGS would include the cost of raw materials, labor, and other expenses directly related to manufacturing vehicles.
Gross Profit is calculated by subtracting the COGS from the revenue.
Selling, General, and Administrative (SG&A) expenses represents the costs associated with a company's non-production activities, such as
sales, marketing, and administrative functions. In the auto industry, SG&A expenses would include salaries of sales personnel, advertising
expenses, rent for office spaces, and other costs related to running the business.
Depreciation & Amortization: Depreciation refers to the systematic allocation of the cost of a tangible asset over its useful life. Amortization, on
the other hand, is the process of spreading out the cost of an intangible asset over its useful life. In the auto industry, depreciation and amortization
expenses would include the depreciation of manufacturing equipment, vehicles, and amortization of patents or trademarks.
Interest Expenses represents the costs associated with borrowing money or using credit facilities. Interest expenses are incurred when a company
has outstanding debt or loans. In the auto industry, interest expenses would include interest paid on loans used to finance manufacturing facilities or
purchase equipment.
Earnings Before Tax is calculated by subtracting the SG&A expenses, Depreciation & Amortization and interest expenses from the Gross Profit
Net Income is calculated by subtracting taxes from the Earnings Before Tax
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5. Step-by-step tutorial to create an income statement
1 Open our income statement template and adjust the periods based on your requirement
2 Adjust the items listed in the income statement based on your specificities
3 Input your numbers in the historical periods of your income statement
4 Input the assumptions that will be used to automatically calculate the future periods of your income statement
5 Review your numbers and dashboard to make sure that everything is correct and makes sense
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6. Step 1: Open our income statement template and adjust the periods based
on your requirement
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7. Step 2: Adjust the items listed in the income statement based on your
specificities
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8. Step 3: Input your numbers in the historical periods of your income statement.
This will automatically update the historical periods of the Assumptions section
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based on your input
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9. Step 4: Input the assumptions that will be used to automatically calculate
the future periods of your income statement
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based on your input
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10. Step 5: Review your numbers and automatically updated dashboard to
make sure that everything is correct and makes sense
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11. Thank you for your attention.
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