How to Read and Understand an Income Statement

Your total revenue is all the money that has come into your business. As you move down your income statement, you’ll see that amount chipped away, used to pay for the cost of creating your products or services and keeping your company running. Your income statement follows a linear path, from top line to bottom line. These “buckets” may be further divided into individual line items, depending on a company’s policy and the granularity of its income statement. For example, revenue is often split out by product line or company division, while expenses may be broken down into procurement costs, wages, rent, and interest paid on debt.

Your operating profit margin is the portion of each dollar your business keeps after taking into account both COGs and general expenses. If your total expenses outweigh your revenue, your net income will be in the negative. For lean startups still fine-tuning their technology and attracting venture capital, temporarily operating at a loss may not be a https://www.bookstime.com/ bad thing. In the service industry, it’s the cost of paying wages and providing the supplies you need to perform those services. You’ll look at your revenue later when it’s time to determine your profit margin—the relationship between how much you spend versus how much you earn. While these drivers are commonly used, they are just general guidelines.

Common Income Statement Questions

With the increase, the average benefit check will increase $49, rising to $1,907 from this year’s $1,858, the agency said. My Accounting Course  is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers. This net income calculation can be transferred to Paul’s statement of owner’s equity for preparation. Gains often occur when a company sells an asset that was used in the business, and the cash received was greater than the asset’s carrying amount on the company’s books. For example, if a company car is sold for $10,000 and its book value is $9,000, there will be a gain of $1,000. Revenue accounts include Sales, Service Revenues, and Other Income such as Rent Income, Royalty Income, Gain on Sale of Fixed Asset, etc.

In ExxonMobil’s statement of changes in equity, the company also records activity for acquisitions, dispositions, amortization of stock-based awards, and other financial activity. This information is useful to analyze to determine how much money is being retained by the company for future growth as income statement accounts opposed to being distributed externally. Instead, it contains three sections that report cash flow for the various activities for which a company uses its cash. Your net profit margin is the number you’ll continue to focus on as your read and analyze each income statement your company produces.