What Is a Corporate Income Statement?
A corporate income statement is a financial document prepared by a corporation showing the revenue earned in a period of time compared to the expenses incurred during the same time period. By subtracting the expenses from the revenue earned from sales, the corporation can calculate its net income for the time period. The net income is also known as the "bottom line," which is the ultimate arbiter of a company's earning power. Preparing a corporate income statement allows a corporation to fulfill its financial reporting obligations as well as to provide a useful tool for business analysis by company management, stockholders, and investors.
Financial statements are the documents prepared by an organization to shed light on all of its business dealings. The two most common financial statements are the balance sheet and the income statement. A corporate balance sheet is a record of all of a company's assets and liabilities that ultimately reveals its net worth. In contrast, a corporate income statement is used to show a company's earnings over a period of time.
The ultimate calculation behind a corporate income statement, which is sometimes known as the profit and loss statement, is revenues minus expenses. Revenue is the money earned from selling products or services to the public. It is important to note that revenue only counts the money that is brought in directly from sales or services. If money is injected into the business by its owners, it is known as cash flow and is not included in the statement.
Expenses include whatever money is spent during the process of earning revenue. For example, companies that sell products must buy inventory to create the products they sell, which results in the cost of goods sold. In addition, operational expenses such as salaries and administrative costs also figure into a company's bottom line. Assets also depreciate, or lose value, over time, and this also should be included as a negative on the corporate income statement.
Finally, interest payments and income taxes are also part of a corporate income statement. These figures are often held separate from the original revenue minus expenses calculation, allowing management to figure out the operating income on its own before interest and income are considered. Once all of these expenses are added together and subtracted from the revenues, the net income of the corporation in question is determined. This number essentially represents how much money a company has earned in the period being studied.
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