The Income Statement is a very useful tool for understanding a company's performance. It is the most recognised financial statement because it shows whether the company is making profits or losses in a particular period e.g. month, quarter or year. It is also known as the profit and loss account. We took the common components of this financial statement and what a reader can decipher from them. Whereas an income statement in a particular period is useful, the apparent value is derived when it is compared against prior periods or against an expectation such as a budget. One is then able to understand whether the company is performing to expectation or whether profitability is declining.
1. Sales/ Revenue
This is the top line of the income statement, it records earnings from sale of goods or services to customers. But when is a sale made?