An income versus expenditure report, also commonly referred to as an income statement, profit and loss statement (P&L), or statement of earnings, is a financial document that provides a summary of a company’s revenues (income) and expenses over a specific period of time. This report is a key component of a company’s financial statements and is essential for assessing its financial performance.
Here’s a breakdown of the key components typically found in an income versus expenditure report:
Sales: The total amount of money generated from selling goods or services.
Other Income: Additional sources of revenue not directly related to the primary business operations (e.g., interest income, dividends).
Cost of Goods Sold (COGS):
The direct costs associated with producing goods or services. This includes raw materials, labor, and manufacturing overhead.
Gross profit is calculated by subtracting the cost of goods sold from total revenue. It represents the profit generated from the core business activities.
Operating expenses include various costs associated with running the day-to-day operations of the business, such as salaries, rent, utilities, marketing, and administrative expenses.
Operating income is derived by subtracting operating expenses from gross profit. It represents the profit generated from the normal operating activities of the business.
Other Income and Expenses:
This section includes any additional income or expenses not directly related to the core operations, such as interest expenses or gains/losses from the sale of assets.
Net Income (Profit or Loss):
Net income is the final figure, representing the overall profit or loss after considering all revenues, costs, and expenses.
The income versus expenditure report provides stakeholders, including management, investors, and creditors, with insights into the financial health and profitability of a business. It’s a crucial tool for decision-making and strategic planning. If the revenue exceeds expenses, the company has a profit, while if expenses exceed revenue, it incurs a loss.