Would you like to know how a company's business model works through a list of expenses, revenues, losses, and profits that occurred during a specific time? Do you want to know the company's performance during that period? You must be familiar with the income statement and its components, as this is her primary responsibility. You will be fully aware of your company's profit or loss by reading it, but the most important question remains: Who can make this list in the best way? Undoubtedly, the Qoyod program is the best integrated cloud accounting program ever, as it saves everyone time and effort and provides a point-of-sale system and electronic invoice systems.
The company prepares this list to track its performance in terms of profit and loss over a specific period. It displays the amount of expenses the company incurs to cover these costs, known as expenses, and the amount of returns it receives from sales, known as revenues, which are calculated by subtracting expenses from revenues. If revenues are greater than expenses, the company is profitable, but if the opposite happens, the company will be at a loss. This income statement also explains in detail the various sources of each of its expenses and revenues in order to show a clearer picture of its performance areas.
While the components of the income statement may vary slightly from one company to another, the following primary elements remain constant:
An organization's business activities generate revenue, also known as sales. The income statement displays the company's revenue, also known as sales, at the top.
If your organization is in the services business, what you spend on those services is cost of sales, which is the line item that shows the direct costs of services and products sold to generate revenue.
Advertising, marketing, and promotion expenses relate to the sale of the service or commodity after marketing it. It is worth noting that Qoyod, which is the best integrated accounting program, offers all of this and more at unprecedentedly competitive prices.
One of the most crucial parts of the income statement is gross profits, which represent the company's total profit after deducting the cost of goods sold from revenues.
Administrative and general expenses encompass all indirect costs related to business management.
It is one of the components of the income statement, and it includes all expenses that result from any sale at a loss of any long-term assets or other unusual costs.
All the benefits that accrue to the company are included in a detailed item in order to differentiate between income before tax and income before interest and tax.
Depreciation and amortization expenses are one of the components of the income statement, and they are those non-cash expenses that accountants create in order to distribute the cost of capital assets, which are facilities, property, and equipment.
The income statement helps companies with the investment and financial efficiency of business activities, as well as many other goals, which are as follows:
The best cloud accounting program, Qoyod, achieves all of these goals and more when you ask it to help you create a company income statement. It also provides a point-of-sale system and electronic invoice systems, which help you take your company to the top.
The income statement contains several main elements that contribute to providing a clear picture of profits and losses, which are as follows:
It represents all the money that the establishment receives from selling its products or services during the financial period covered in the list. It is worth noting that this number includes all sales, whether cash or on account. It is the first and most important element on the list because it reflects the facility’s ability to generate income from its main activity.
It is the difference between sales revenue and the cost of goods sold, and it expresses the initial profit that the business achieves from its sales before deducting operating expenses. Do not forget that this number represents an approximate indicator of the basic profitability of the business before calculating additional costs.
Operating expenses include all expenses that an entity spends on operating its business activity. These expenses include:
It is worth noting that these expenses are subtracted from the gross profit to determine operating profit.
It encompasses all expenses related to the production of the goods or the provision of the services sold.
This item helps determine gross profit by subtracting it from sales revenue.
It is the profit generated from commercial activity after deducting all operating expenses. It is worth noting that this number expresses the facility’s efficiency in managing its operations and achieving profits from its primary activity. It is important to note that operating profit does not include non-operating expenses such as taxes and interest.
It represents the gradual distribution of the cost of fixed assets (such as equipment and machinery) over their useful lives. The income statement periodically calculates these expenses to reflect the assets' declining value due to use and time.
These are the costs incurred by the enterprise as a result of the loans it obtained. These interests are paid to banks or other lenders and reflect the cost of debt financing during the financial period.
This item expresses the profits realized from the sale of assets or investments that are not part of the entity’s main activity and includes:
It includes all amounts that the entity must pay to the tax authorities based on its profits and is deducted from the profit before taxes to determine the final net profit.
| Statement | sum |
|
Sales revenue (-) Cost of sales |
XX (XX)
|
| Operating profit | XX |
| Gross profit | XX |
|
Other expenses Loss on sale of a fixed asset Depreciation expense |
(XX)
(XX) |
| Net profit before taxes and interest | XX |
| Operating expenses | XX |
|
Other income
Profits from selling investments |
XX |
| Net profit before taxes and interest | XX |
| Net profit/loss | XX |
Comprehensive income elements include a variety of items that are not included in net profit or loss but affect the company’s financial position. The most prominent of these elements are:
Comprehensive income is calculated by adding net profit or loss to the total elements of comprehensive income, as this number represents the complete picture of the company's financial performance, including items that do not appear in the traditional income statement.
| Statement | 2022 | 2023 |
| Profit or loss for the year | 100 | 50 |
| Comprehensive income/loss | ||
| Value of reclassified securities | 30 | 15 |
| Value of foreign currency operations | 25 | 20 |
| Exchange rate gains and losses | 10 | 5 |
| Total comprehensive income/loss | 145 | 60 |
In this example, our company achieved a net profit of 100 thousand Saudi riyals in 2022 and 50 thousand Saudi riyals in 2023, and when adding the comprehensive income elements, we find the following:
The company achieved gains of 30 thousand Saudi riyals in 2022 but incurred losses of 15 thousand Saudi riyals in 2023.
There were gains of 25 thousand Saudi riyals in 2022 and 20 thousand Saudi riyals in 2023.
The company incurred losses of 10,000 Saudi riyals in 2022 but achieved gains of 5,000 Saudi riyals in 2023.
When we add all these elements, we get the company's total comprehensive income:
Income statements can be divided into two main types:
In this type of statement, all revenues are collected in one section, whether they are operating revenues (such as sales of goods or services) or non-operating revenues (such as interest income or investments).
Likewise, all expenses are grouped into one section, whether they are operating expenses (such as the cost of goods sold and salaries) or non-operating expenses (such as interest paid).
By subtracting total expenses from total revenues, the net profit or loss can be arrived at. But this type of statement is not particularly useful for evaluating the financial performance of operations because it does not separate operating and non-operating profit, and thus analysts lack the ability to clearly evaluate operating performance.
| Statement | sum |
|
Revenues: Sales revenue Investment income Total revenue |
400.000 300.000 700.000
|
|
Expenses: Operating expenses General expenses Marketing expenses (Total Expenses) |
160.000 40.000 60.000 260.000
|
| Net profit | 440.000 |
This list takes a more detailed approach, separating operating and non-operating income as well as expenses.
First, operating income, such as sales, is included, followed by deducting operating expenses, such as the cost of goods sold and salaries, to arrive at operating profit.
After that, non-operating income and non-operating expenses are listed to arrive at net profit or loss. It is worth noting that this type of statement gives a more accurate and comprehensive look at the financial performance of the facility because it clearly highlights the operating profit.
Although preparing an income statement with multiple steps requires more time and effort to collect and detail data, it provides more accurate information to analysts and investors about the financial performance of the facility, which helps them make more informed investment and management decisions.
| Statement | sum |
|
Sales revenue (-) Cost of goods sold |
400.000 80.000
|
| Gross profit | 320.000 |
| (operating expenses) | 80.000 |
| Operating profit | 240.000 |
| (Other expenses) | 20.000 |
| Other income | 80.000 |
| Net profit before taxes and interest | 284.000 |
|
(interest expense) (tax expense) |
40.000 28.000
|
| Net profit or net loss | 196.000 |
One-step income statement: simpler and quicker to prepare, but less useful for analyzing operating performance.
Multi-step: Despite its complexity, it provides more accurate and comprehensive information about financial performance, making it a valuable analytical tool for investors and management.
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The income statement, also known as the profit and loss statement, is a financial document that shows a company's financial performance during a specific period by recording revenues and expenses to arrive at net profit or loss.
The income statement includes the following components:
The income statement helps:
You can prepare an income statement using cloud accounting software such as “Qoyod,” which facilitates the process of preparing financial statements and provides integrated systems for managing invoices and sales.
Yes, the income statement includes non-cash items such as depreciation and amortization expenses that reflect the cost of capital assets over their useful lives.
By providing a clear picture of revenues, expenses, profits, and losses, the income statement helps management make informed decisions about improving financial performance and planning future strategies.
Yes, increasing the profits included in the income statement can raise the value of the company's shares on the stock exchange and enhance investors' confidence in its financial performance.
Excerpt
Banks and financial institutions use the income statement in all loan-related matters because it increases the value of shares on the stock exchange and shows the company's financial capacity to meet its obligations, so it is important to pay attention to it.
The income statement, or what is called the profit statement, operating list, or income statement, is a way to clarify the company’s losses and profits by subtracting expenses from revenues. Therefore, you should pay great attention to this list because of its direct impact on clarifying the company’s profit and loss. It is worth noting that this type of list has four basic elements, namely: revenues, expenses, profits, and losses, and because we are fully aware of the difficulty of preparing this list on your own, we have provided you with Qoyod, the best cloud accounting program ever, as it will do that for you. So, focus all your attention on your main work and leave it to us.
At the conclusion of this article, we would like to point out the importance of Qoyod in the field of accounting, as it issues all types of statements, including the income statement, and it also provides a point-of-sale system and various electronic invoice systems, all at prices that suit everyone and are compatible with international accounting standards.
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