Income Statement

Introduction

The income statement is the most significant indicator of a company’s financial performance. It shows the flow of wealth over an accounting period.

The IAS 1 requires all items of income and expenses in a period to be included in the income statement unless an accounting standard or interpretation requires otherwise such as when changes occur in accounting policies.

The Profit Statement: a summary of the business’s transactions for a given period of time, it is also called an income statement and compares “income” with expenses over the same period of time.

The profit statement shows one of the key aspects of financial performance, namely profitability, of which there are two key measures, namely:

  • Gross profit/margin
    • Turnover less cost of sales
  • Operating profit
    • Gross profit less expenses

Operating profit is also known as:

  • (EBIT) earnings before interest and tax
  • (PBIT) profit before interest and tax
  • Net profit

Income statement Items that need to be disclosed are:

  • Revenue
  • Finance costs
  • Share of profits and losses of associates and joint ventures accounted for using the equity method.
  • Pre-tax gain or loss recognised on the disposal of assets or settlement of liabilities attributable to discontinued operations.
  •  Tax expense
  • Profit or loss
  • Dividends
  • Notes- Important and influential accounting policies on the amounts of items must be disclosed.  Also the key assumptions about the future have to be disclosed.