Word of the Week 'Income Statement'

What is an 'Income Statement'

An income statement is a financial statement that reports a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period.

BREAKING DOWN 'Income Statement'

Also known as the profit and loss statement or statement of revenue and expense, the income statement is one of three major financial statements in the annual report and 10-K. All public companies must submit these legal documents to the Securities and Exchange Commission and investor public. The other two financial statements are the balance sheet and the statement of cash flows. All three provide investors with information about the state of the company's financial affairs, but the income statement is the only one that summarizes company sales and net income.

Income Statement

Unlike the balance sheet, which covers one moment in time, the income statement provides performance information about a certain time: monthly, quarterly, yearly or any other variation. It begins with sales and works down to net income and earnings per share.

There are two parts to an income statement: operating and non-operating. The operating portion of the income statement discloses information about revenues and expenses that directly result from regular business operations. For example, if a business creates sports equipment, it should make money through the sale and production of sports equipment. The non-operating section discloses revenue and expense information about activities not directly tied to a company's regular operations. Continuing with the same example, if the sports company sells real estate and investment securities, the company will list the gain from the sale in the non-operating items section.

A Real World Example

Below is a reproduction of Apple Inc.'s (AAPL) income statement. All amounts are in millions of U.S. dollars.

Income Statement: