Income statement: essential financial statement

Hi. Janis Weber here. I am continuing my series that introduces financial accounting concepts. My background is in accounting as a certified public accountant, and it spans two careers. First, I was a CPA in public practice for many years, and then now I'm an educator at a public university. This has been a fun experience for me in both sides of accounting. I would like to inspire you to research it further. I'm hoping that's what we can do with this series. This session, we're going to delve a little bit into the company's income statement.

The income statement covers the company's revenue and expenses. Basically, the largest portion of the revenue part would be from the company's product that they're selling or their service that they're providing. The revenue or earnings that they made is the biggest piece of what's coming into the income statement. Then on the income statement, what's going out is what's called expense. They are mostly costs related to the product or service they're providing on the income statement, but there are some other ancillary costs and just operational costs related to administrative and selling expenses. But the bottom line is all the revenue that the company earned less all the expenses and other costs that they paid out would be the net income of the company. It can be more involved than that, but that is basically what is happening on an income statement. You're just trying to find a way to show the outsiders who are taking a peek into the company what the revenue was that was produced and what it costs the company to produce that revenue, so that you can see what their net profit was in the end. That net profit is called net income. Ultimately, that net income is going to be included as part of the company's equity because it will, at the end of the year, roll into retained earnings, because, as we had mentioned earlier in an earlier talk, retained earnings includes all the cumulative income over the years that the company has earned and also has retained in the company. This whole income statement is just temporary, like a picture of what's happening this period. But in the long run, it's still going to be included in the company's equity. I'm going to show you a couple of income statement examples.