The income statement is one of the most important financial statements that any company or organization needs. It is a financial statement or other evidence that shows the company’s revenues, costs, total profit, sales, administrative expenses, other expenses, income and taxes paid, net profit or loss arising from its accounting activities for a specific period of time, and income means the profit obtained from the sale of goods and the provision of services, the interest received from a third party for the use of business assets, and the rent. Expenses mean expenses directly related to the revenue of a particular accounting period and other expenses for that accounting period, such as interest payable, loss of sale of assets, loss of property due to an accident, etc. The income statement is also known as the profit and loss statement, operating statement, financial results statement, or income or profit statement. There are several types and divisions of the income statement that can be used to present financial statements in different ways, and this article will explain them:

What are the types of income statements?

The income statement is classified into several types, and the following is an explanation of each of them separately:

Comparative Income Statement

This list displays the results of multiple reporting periods as adjacent columns. This layout is very useful for evaluating business results over a period of time, which is why it is frequently used by financial analysts.

Intensive Income Statement

This list groups each common type of list item together, such as aggregating revenue in one line, cost of goods sold, and operating expenses as well, and then adding the totals to get the final sum of all items. This format can be used to report to readers who are only interested in the overall totals, such as lenders.

Income statement contribution margin

This list shows the variable expenses in the cost of goods sold, provides ease of discernment of the amount contributed in sales of products and services, and can calculate the break-even point of the business.

Cash income statement

The income statement prepared on the basis of cash only contains the income received in cash from customers and the expenses that were paid to suppliers, and this statement differs in its results from the income statement prepared on the basis of accounting accrual.

Partial income statement

This list shows income results for a partial period only and is most commonly used when the business is just starting and the first reporting period can include less than an entire month.

One-step income statement

This list indicates that it is a simplified version of the income statement compared to the multi-step list, which is more clear and relatively easier to prepare and understand. Expenses out of total revenue to get the net profit, and this list is used by small businesses or sole proprietorships.

One-step income statement equation
Net Profit = Total Revenue – Total Expenses

Multi-step income statement

This list expresses the standard form of the income statement prepared by major companies and all companies listed on the stock exchange, and this list divides their revenues and expenses into operational and non-operating businesses. It is very useful for potential investors and outside readers who are interested in the company’s performance.

The multi-step income statement equation
In this list, three equations are used to calculate the net income, which are as follows:
Gross profit = net sales – cost of goods sold.
Operating Income = Gross Profit – Operating Expenses
Net income = Operating Income + Non-operating Items.

What is the importance of using the income statement?

The use of the income statement is very important for the owners of the company and everyone who has a relationship with the company, including its creditors, investors, and others, as its use is of great importance, and the following is a statement of it:

Provide details of the company’s commercial activities.
Providing a detailed view of the internal elements of the various businesses and sectors of the company.
Obtain the degree of progress made by the company’s management in various financial operations during the accounting year.
Preparing reports for the company based on the results issued from the income data to make important decisions about the company, such as expanding its branches, increasing production capacity, increasing sales, or closing a department or production line, for example.

It should be noted that creditors’ use of the income statement is somewhat less than others. This is because they are more interested in keeping track of the cash flow statement than looking at the company’s profitability.

The importance of using the income statement?