Income statement, also called a profit & loss (P&L) statement. This shows the profit or loss of a company over a certain period of time.
Since the income statement is compiled according to the basic logic of “revenue – expense = net income”, it mainly contains the financial data of total revenue, operating expenses, and net income.
Where total revenue = operating revenue + non-operating revenue.
Operating income refers to the income obtained by an enterprise from its production and operation activities in its trade. Operating income is the core index of an enterprise, which reflects the scale, profitability, and sustainability of the enterprise.
Non-operating income refers to income outside the main business, such as investment income, interest income, etc.
Second, operating expenses include operating costs, other expenses and income taxes, and so on.
Finally, net profit is the final result of a business operation and is the main index to measure a business’s efficiency. The formula is net profit = total revenue – operating expenses (operating expenses = operating cost + income tax + other expenses)
Simply put, an income (P&L) statement is a measure of whether an enterprise has made or lost money. Specifically, how much you sell, how much money you make, how much it costs, how much money you spend, and how much money you get in the end.
Here is an example:
The Christmas holiday is coming. Jack, the owner of a hot pot restaurant, wants to see how much money he has made this year.
In terms of revenue, $1 million will be made in the store this year, and another $100,000 will be made from selling hot pot bases online.
So Jack’s total revenue from this store is $1.1 million.
There are also expenses such as store rent, raw materials, staff salaries, advertising fees, and taxes to run the store. Jack has spent a total of $700,000 on these operating expenses this year, which is equivalent to operating expenses. You take the total revenue of $1.1 million minus the operating expenses of $700,000, and you get what Jack took home this year, which is $400,000 in net profit.
There are three famous tables in a company’s financial statement, the balance sheet, the cash flow statement, and the income statement, which are symbols of a company’s strength, vitality, and ability.
It should be noted that the income statement is a more confusing table, and must be carefully analysed. For example, having an income does not mean receiving cash, receiving money may mean no income, having expenses does not mean paying cash, and paying cash does not necessarily result in expenses.
About the profit statement, I hope you can remember and apply the following points:
- What does “having income does not mean receiving cash”? Quite simply, businesses have a lot of receivables that haven’t been collected.
- What is “received money, but no income”? Very simply, I have not delivered the advance of the payment. We cannot regard the advance of the payment as their own.
- What do you mean “there is a fee but do not need to pay cash”? It’s simple. While the fixed assets are wearing down, they don’t have to pay anyone else.
- What is “paying cash but not generating expenses”? Quite simply, the company prepays next year’s rent, trades back the right to use the house for the next year, and gets an asset without incurring fees.
