I get sometimes asked what the entity’s results are. ‘Results’ can be defined in two ways – financial position (e.g. entity’s balances at a certain date) and performance (revenues and expenses for a defined period). Whilst the balance sheet is something we’ll discuss separately, with this I would like to explain the income statement a little further.
An income statement is in fact a statement showing entity’s revenues (from regular sales and from extraordinary streams) as well as expenses incurred in relation to those revenues (that is expenses we had to incur in order to have revenues happening) and other expenses that relate to the same period but not directly to sales (that is your other operating expenses, extraordinary expenses incurred and so on).
The items on the statement are grouped so as to start from your base operations, revenues and expenses relating to your ordinary course of business and are then followed by your expenses not directly attributable to your operations but those that still happen regularly, i.e. rent of office space, supplies etc. And then there are your extraordinary, your irregular revenues and expenses, they always come the last just before the operating result. Your financial income and expenses are shown just before the tax expenses and to the very last you’ll then reach the net profit for the period.
It’s one thing to count for your revenues and for your expenses but another to realize how you’ve done at the end of the day, whether you’re in the red or in the black with your company.