The elements of an income statement include revenues, gains, gross profit, expenses, losses, and net income or loss.
Revenues
Revenue is all income generated by the sale of the business’ primary goods or services. Revenue may also be referred to as the “top line,” because it is the first line on the income statement.
- Operating revenue is defined as revenue from primary business activities.
- Non-operating revenue is the revenue gained from secondary activities such as interest, rental income, and partnerships.
Gains
Gains are the earnings produced outside of the sale of your main goods or services. For example, selling off an asset can be categorized under gains.
Gross profit
Gross profit is what's left of your revenue after deducting the cost of goods sold (COGS)—the direct costs related to producing goods or providing services.
Revenue – COGS = gross profit
Expenses
Expenses include all operating expenses required to run your business.Operating expenses—also known as selling, general, and administrative expenses—include costs such as advertising, insurance, and rent. The costs associated with producing your goods or providing services are not included in the expenses section of the income statement.
Losses
Losses include money lost through activities outside of transactions for your primary goods or services. For example, paying out a lawsuit settlement is considered a loss.
Net income or net loss
Net income—or loss—is what is left over after all revenues and expenses have been accounted for. If there is a positive sum (revenue was greater than expenses), it’s referred to as net income. If there’s a negative sum (expenses were greater than revenue during that period), then it’s referred to as net loss.
Net income = (total revenue + gains) – (total expenses + losses)
