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WIKIBOOKS
DISPONIBILI
?????????

ART
- Great Painters
BUSINESS&LAW
- Accounting
- Fundamentals of Law
- Marketing
- Shorthand
CARS
- Concept Cars
GAMES&SPORT
- Videogames
- The World of Sports

COMPUTER TECHNOLOGY
- Blogs
- Free Software
- Google
- My Computer

- PHP Language and Applications
- Wikipedia
- Windows Vista

EDUCATION
- Education
LITERATURE
- Masterpieces of English Literature
LINGUISTICS
- American English

- English Dictionaries
- The English Language

MEDICINE
- Medical Emergencies
- The Theory of Memory
MUSIC&DANCE
- The Beatles
- Dances
- Microphones
- Musical Notation
- Music Instruments
SCIENCE
- Batteries
- Nanotechnology
LIFESTYLE
- Cosmetics
- Diets
- Vegetarianism and Veganism
TRADITIONS
- Christmas Traditions
NATURE
- Animals

- Fruits And Vegetables


ARTICLES IN THE BOOK

  1. Account
  2. Accountancy
  3. Accountant
  4. Accounting cycle
  5. Accounting equation
  6. Accounting methods
  7. Accounting reform
  8. Accounting software
  9. Accounts payable
  10. Accounts receivable
  11. Accrual
  12. Adjusted basis
  13. Adjusting entries
  14. Advertising
  15. Amortization
  16. Amortization schedule
  17. Annual report
  18. Appreciation
  19. Asset
  20. Assets turnover
  21. Audit
  22. Auditor's report
  23. Bad debt
  24. Balance
  25. Balance Sheet
  26. Banking
  27. Bank reconciliation
  28. Bankruptcy
  29. Big 4 accountancy firm
  30. Bond
  31. Bookkeeping
  32. Book value
  33. British qualified accountants
  34. Business
  35. Business process overhead
  36. Capital asset
  37. Capital goods
  38. Capital structure
  39. Cash
  40. Cash flow
  41. Cash flow statement
  42. Certified Management Accountant
  43. Certified Public Accountant
  44. Chartered Accountant
  45. Chartered Cost Accountant
  46. Chart of accounts
  47. Common stock
  48. Comprehensive income
  49. Consolidation
  50. Construction in Progress
  51. Corporation
  52. Cost
  53. Cost accounting
  54. Cost of goods sold
  55. Creative accounting
  56. Credit
  57. Creditor
  58. Creditworthiness
  59. Current assets
  60. Current liabilities
  61. Debentures
  62. Debits and Credits
  63. Debt
  64. Debtor
  65. Default
  66. Deferral
  67. Deferred tax
  68. Deficit
  69. Deloitte Touche Tohmatsu
  70. Depreciation
  71. Direct tax
  72. Dividend
  73. Double-entry bookkeeping system
  74. Earnings before interest and taxes
  75. Earnings Before Interest, Taxes and Depreciation
  76. Earnings before Interest, Taxes, Depreciation and Amortization
  77. Engagement Letter
  78. Equity
  79. Ernst a& Young
  80. Expense
  81. Fair market value
  82. FIFO and LIFO accounting
  83. Finance
  84. Financial accounting
  85. Financial audit
  86. Financial statements
  87. Financial transaction
  88. Fiscal year
  89. Fixed assets
  90. Fixed assets management
  91. Fixed Assets Register
  92. Forensic accounting
  93. Freight expense
  94. Fund Accounting
  95. Furniture
  96. General journal
  97. General ledger
  98. Generally Accepted Accounting Principles
  99. Going concern
  100. Goodwill
  101. Governmental accounting
  102. Gross income
  103. Gross margin
  104. Gross profit
  105. Gross sales
  106. Historical cost
  107. Hollywood accounting
  108. Imprest system
  109. Income
  110. Income tax
  111. Indirect tax
  112. Insurance
  113. Intangible asset
  114. Interest
  115. Internal Revenue Code
  116. International Accounting Standards
  117. Inventory
  118. Investment
  119. Invoice
  120. Itemized deduction
  121. KPMG
  122. Ledger
  123. Lender
  124. Leveraged buyout
  125. Liability
  126. Licence
  127. Lien
  128. Liquid asset
  129. Long-term assets
  130. Long-term liabilities
  131. Management accounting
  132. Matching principle
  133. Mortgage
  134. Net Income
  135. Net profit
  136. Notes to the Financial Statements
  137. Office equipment
  138. Operating cash flow
  139. Operating expense
  140. Operating expenses
  141. Ownership equity
  142. Patent
  143. Payroll
  144. Pay stub
  145. Petty cash
  146. Preferred stock
  147. PricewaterhouseCoopers
  148. Profit
  149. Profit and loss account
  150. Pro forma
  151. Purchase ledger
  152. Reserve
  153. Retained earnings
  154. Revaluation of fixed assets
  155. Revenue
  156. Revenue recognition
  157. Royalties
  158. Salary
  159. Sales ledger
  160. Sales tax
  161. Salvage value
  162. Shareholder
  163. Shareholder's equity
  164. Single-entry accounting system
  165. Spreadsheet
  166. Stakeholder
  167. Standard accounting practice
  168. Statement of retained earnings
  169. Stock
  170. Stockholders' deficit
  171. Stock option
  172. Stock split
  173. Sunk cost
  174. Suspense account
  175. Tax bracket
  176. Taxes
  177. Tax expense
  178. Throughput accounting
  179. Trade credit
  180. Treasury stock
  181. Trial balance
  182. UK generally accepted accounting principles
  183. United States
  184. Value added tax
  185. Value Based Accounting Standards and Principles
  186. Write-off
 



ACCOUNTING
This article is from:
http://en.wikipedia.org/wiki/Profit_and_loss_account

All text is available under the terms of the GNU Free Documentation License: http://en.wikipedia.org/wiki/Wikipedia:Text_of_the_GNU_Free_Documentation_License 

Income statement

From Wikipedia, the free encyclopedia

(Redirected from Profit and loss account)

Income statements for companies indicate how Net Revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into Net Income (the result after all revenues and expenses have been accounted for, also known as the "bottom line"). The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported.

Also called Profit and Loss Statement (P&L), outside the USA or in reference to charitable organizations Statement of Activities and Changes in Net Assets.

Usefulness and limitations of income statement

Income statement should help investors and creditors:

the past performance of the enterprise
  • predict future performance
  • assess the risk of achieving future cash flows.

However, information in an income statement has several limitations:

  • items that might be relevant but cannot be reliably measured are not reported (e.g. brand recognition and loyalty)
  • some numbers depend on accounting methods used (e.g. using FIFO or LIFO accounting to measure inventory level)
  • some numbers depend on judgments and estimates (e.g. depreciation expense depends on estimated useful life and salvage value).

See also: Creative accounting

Single-step income statement

In the single-step statement, just two groups exist: revenues and expenses. Expenses are deducted from revenues to get net income (single step). Its main advantage is simplicity, but more and more companies choose multiple-step statements. The basic format is shown below.

Revenues  Net sales ____________________$3,400,000  Rent revenue _________________    40,000  Interest revenue _____________    12,000     Total revenue _____________ 3,452,000Expenses (usually sorted by amount)  Cost of goods sold ___________ 2,000,000  Selling expenses _____________   450,000  Administrative expenses ______   350,000  Interest expense _____________    45,000     Total expense _____________ 2,845,000Income before taxes ____________   607,000Income taxes ___________________   182,100Net income _____________________   424,900Earnings per share _____________     $4.20

Based on 100,000 shares.

Multiple-step income statement

It is argued that multiple-step income statement provides more useful information because it separates operating and non-operating activities and classifies expenses by function. It allows instant comparisons and ratio computations which evaluate performance of the company. The basic sections are shown below.

                                           __    Net Revenue                              |-   Cost of Sales (or Cost of Goods Sold)    |=   Gross Margin or Profit                   |-   Selling Expenses                         |> Operating Section -   General and Administrative Expenses      |=   Operating Profit                       __|-   Interest Expense                         |  +   Other Revenues or Gains                  |> Non-operating Section-   Other Expenses or Losses               __|=   Earnings Before Taxes-   Taxes=   Earnings Before Irregular Items        __-/+ Discontinued Operations                  |-/+ Extraordinary Items                      |> Irregular Items-/+ Changes in Accounting Principle        __|=   Net Income    Earnings Per Share

Items on income statement

Operating section

  • Net Revenue - Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations. Usually presented as sales minus sales discounts, returns, and allowances.
  • Expenses - Outflows or other using-up of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations.
    • Cost of goods sold - represents the amount a product cost you to produce
    • General and administrative expenses (G & A) - represent expenses to manage the business (officer salaries, legal and professional fees, utilities, insurance, depreciation of office building and equipment, stationery supplies)
    • Selling expenses - represent expenses needed to sell products (e.g., sales salaries and commissions, advertising, freight, shipping, depreciation of sales equipment)
    • R & D expenses - represent expenses included in research and development
    • Depreciation - represents costs associated with depreciated assets

Non-operating section

  • Other revenues or gains - revenues and gains from other than primary business activities (e.g. rent, patents). It also includes unusual gains and losses that are either unusual or infrequent, but not both (e.g. sale of securities or fixed assets).
  • Other expenses or losses - expenses or losses not related to primary business operations.

Irregular items

They are reported separately because this way users can better predict future cash flows - irregular items most likely won't happen next year. These are reported net of taxes.

  • Discontinued operations is the most common type of irregular items. Shifting business location, stopping production temporarily, or changes due to technological improvement do not qualify as discontinued operations.
  • Extraordinary items are both unusual (abnormal) and infrequent, for example, unexpected nature disaster, expropriation, prohibitions under new regulations. Note: nature disaster might not qualify depending on location (e.g. frost damage in Canada would not qualify whereas in tropics would).
  • Changes in accounting principle is, for example, changing method of computing depreciation from straight-line to sum-of-the-years'-digits. However, changes in estimates (e.g. estimated useful life of a fixed asset) do not qualify.

Earnings per share

Because of its importance, earnings per share (EPS) are required to be disclosed on the face of the income statement. A company which reports any of the irregular items must also report EPS for these items either in the statement or in the notes.

Earnings\ per\ share = \frac{net\ income - preferred\ stock\ dividends}{weighted\ average\ of\ common\ stock\ shares\ outstanding}

There are two forms of EPS reported:

  • Basic: in this case "weighted average of shares outstanding" includes only actual stocks outstanding.
  • Diluted: in this case "weighted average of shares outstanding" is calculated as if all stock options, convertible bonds, and other securities that could be transformed into shares are transformed. This way number of shares increases and EPS decreases. Diluted EPS is considered to be a more accurate way to measure EPS.

Alternative setup of multiple-step income statement

Setups of income statements come in many shapes and forms. Below is an alternative definition which carries a direct relationship to terminology commonly used in financial analysis. On the right hand side of the table several alternative suggestions for terminology are listed - economics and accounting is by no means a discipline with a single standard definition of terms used. Hence, part of the skill in understanding income statements and balance sheets is to see through the words.

Income statement item      Acronym spelled out       Alternative terminology  Revenues                                             Sales, Income, Turnover-CoGS                      Cost of Goods Sold        Cost of sales---------------------------------------------------------------------------------------------------------EBITDA                     Earnings before I+T+D+A   Gross margin, Gross profit, Operating margin- Depreciation- Amortization---------------------------------------------------------------------------------------------------------EBIT                       Earnings before I+T- Interest                                           Financial items, Financial income, Financial expense---------------------------------------------------------------------------------------------------------EBT                        Earnings before Taxes     Pretax net income- Taxes---------------------------------------------------------------------------------------------------------E                          Earnings                  Net income

Simple example: Colgate-Palmolive income statement

                           COLGATE-PALMOLIVE COMPANY                          CONSOLIDATED STATEMENTS OF INCOME                (Dollars in Millions Except Per Share Amounts)            For the years ended December 31,       2004          2003           2002------------------------------------------------------------------------------ Net sales                           $ 10,584.2    $  9,903.4     $  9,294.3  Cost of sales                          4,747.2       4,456.1        4,224.2 ------------------------------------------------------------------------------    Gross profit                        5,837.0       5,447.3        5,070.1  Selling, general and administrative   expenses                              3,624.6       3,296.3        3,034.0  Other (income) expense, net               90.3         (15.0)          23.0      ------------------------------------------------------------------------------    Operating profit                    2,122.1       2,166.0        2,013.1  Interest expense, net                    119.7         124.1          142.8 ------------------------------------------------------------------------------    Income before income taxes          2,002.4       2,041.9        1,870.3  Provision for income taxes               680.3         620.6          582.0 ------------------------------------------------------------------------------    Net income                        $ 1,327.1    $  1,421.3     $  1,288.3 ------------------------------------------------------------------------------ Earnings per common share, basic     $    2.45    $     2.60     $     2.33  Earnings per common share, diluted   $    2.33    $     2.46     $     2.19

Complex example: Viacom, Inc. income statement

                                VIACOM INC. AND SUBSIDIARIES                             CONSOLIDATED STATEMENTS OF OPERATIONS                           (In millions, except per share amounts)      ----------------------------------------------------------------------------------------------  Year Ended December 31,                                   2004         2003         2002---------------------------------------------------------------------------------------------- Revenues                                               $ 22,525.9   $ 20,827.6   $19,186.8    Expenses:                         Operating                                             12,545.8     11,879.8    10,735.5       Selling, general and administrative                    4,142.1      3,732.3     3,498.6       Depreciation and amortization                            809.9        741.9       711.8       Impairment charge (Note 3)                            17,997.1            —            —   ----------------------------------------------------------------------------------------------      Total expenses                                      35,494.9     16,354.0    14,945.9   ---------------------------------------------------------------------------------------------- Operating income (loss)                                 (12,969.0)     4,473.6      4,240.9  Interest expense                                           (718.9)      (742.9)      (799.1)  Interest income                                              25.3         11.7        12.0    Other items, net                                              7.6         (3.0)       (32.9) ---------------------------------------------------------------------------------------------- Earnings (loss) from continuing operations before   income taxes, equity in earnings (loss) of affiliated   companies and minority interest                        (13,655.0)     3,739.4     3,420.9    Provision for income taxes                               (1,378.6)    (1,497.0)    (1,338.3)  Equity in earnings (loss) of affiliated companies,   net of tax                                                 (20.8)          .1        (37.3)  Minority interest, net of tax                                (5.1)        (4.7)        (3.3) ---------------------------------------------------------------------------------------------- Net earnings (loss) from continuing operations          (15,059.5)     2,237.8      2,042.0  ---------------------------------------------------------------------------------------------- Discontinued operations (Note 2):                         Earnings (loss) from discontinued operations          (1,182.7)      (718.8)      255.3       Income taxes, net of minority interest                    92.4        (83.6)       (90.7)----------------------------------------------------------------------------------------------    Net earnings (loss) from discontinued operations      (1,090.3)      (802.4)       164.6  ---------------------------------------------------------------------------------------------- Net earnings (loss) before cumulative effect of   accounting change                                      (16,149.8)     1,435.4     2,206.6    Cumulative effect of accounting change, net of minority   interest and tax (Note 1)                               (1,312.4)       (18.5)    (1,480.9)---------------------------------------------------------------------------------------------- Net earnings (loss)                                   $ (17,462.2)   $ 1,416.9   $   725.7   ----------------------------------------------------------------------------------------------   Basic earnings (loss) per common share:     Net earnings (loss) from continuing operations         $ (8.78)      $ 1.28       $1.16       Net earnings (loss) from discontinued operations       $  (.64)      $ (.46)      $  .09       Net earnings (loss) before cumulative effect of      accounting change                                     $ (9.42)      $  .82       $ 1.26       Cumulative effect of accounting change                 $  (.77)      $ (.01)      $ (.84)     Net earnings (loss)                                    $(10.19)      $  .81       $  .41    Diluted earnings (loss) per common share:                         Net earnings (loss) from continuing operations         $ (8.78)      $ 1.27       $ 1.15       Net earnings (loss) from discontinued operations       $  (.64)      $ (.46)      $  .09       Net earnings (loss) before cumulative effect of      accounting change                                     $ (9.42)      $  .82       $ 1.24       Cumulative effect of accounting change                 $  (.77)      $ (.01)      $ (.83)     Net earnings (loss)                                    $(10.19)      $  .80       $  .41    Weighted average number of common shares outstanding:                         Basic                                                   1,714.4     1,744.0      1,752.8       Diluted                                                 1,714.4     1,760.7      1,774.8    Dividends per common share                                $   -         $  .25       $  .12

Top line

Top line refers to the total revenues or sales mentioned in the income statement. This refers to the fact that the total revenues collected by a company appears at the top of the income statement.

Bottom line

Bottom line is the net income that is calculated after subtracting the expenses from revenue. Since this forms the last line of the income statement, it is generally referred to the bottom line.

See also

  • Accounting
  • Cash Flow
  • Balance Sheet

External links

  • Income Statement Explanation with examples.
  • Understanding Income Statements
  • Understanding The Income Statement Article from Investopedia
Retrieved from "http://en.wikipedia.org/wiki/Income_statement"

  

 

 


 

 
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