The profit and loss statement (also known as the income statement) shows a firm’s revenues, expenses, and taxes associated with those expenses for a financial period.
Where the balance sheet may be thought of in terms of the “left–right” orientation previously discussed, the income statement would be thought of in “top–down” terms.
|− Cost of Goods Sold||− $319,680.00|
|− Selling & Administrative Expenses||− $132,300.00|
|Earnings Before Interest & Taxes||$88,020.00|
|− Interest||− $10,356.00|
|− Taxes||− $35,726.00|
|− Dividends||− $33,108.00|
|Transfer to Retained Earnings||$8,830.00|
A basic overview of the income statement items above shows how a manufacturing company might present an income statement. Income statements for other companies may appear to be slightly different, but in general, the construction would be the same.
An important concept in understanding the income statement is Earnings Per Share (EPS). The EPS for a company is net income divided by the number of shares of common stock outstanding. It represents the bottom line for a company.
Companies continually make decisions on how their bottom line will be impacted since shareholders in the company are concerned with how management decisions affect individual shareholder position.