 As we've already discussed that there are three types of financial statements that are used to understand the financial health of a firm or a company. All together these three financial statements are the balance sheet, the income statement and the cash flow statement. So in this module we are going to discuss what is meant by an income statement, what are the various components of an income statement and when we look at the income statement how do we analyze it, what are the various things that we need to understand that this is what they are telling us. So this is what the basic objective of this module is. So financial statements have three different forms, as I just told you, so now we are going to discuss the income statement. The income statement represents any firm's profitability and this is a time-bound statement. So generally it is prepared for a year and it gives you a summary of the profitability of a firm. So by looking at this, by looking at this country, you can see that the firm is making profit or it is making losses. So this tells you one aspect of the financial performance of a firm. So as we discussed, there are different things that are taken into consideration when we prepare a balance sheet or when we look at the balance sheet or when we analyze the balance sheet. Similarly, there are various components of an income statement. So in the income statement, we have basically different sources, the revenues, the gains, the losses, we account for them and develop an image of overall profitability. So the income statement, we can call it an income statement as a statement of earnings as well. And apart from this, we also call it a statement of profit and loss. So as we talked about the income, we will make profit minus loss, so the income generated is the various ways through you can call the same type of statement. So the key elements of this are all together, there are four key items or key elements which are made on a basis. So we consider the revenues, we consider the expenses, we consider the gains and we consider the losses. So these are the four key items or elements which are used to prepare this statement or to compensate. So there is a caution we need to understand that when we prepare an income statement, it does not cover the receipts. Receipt ka kya matlab hai, ke jo money aapne business ya cash payment ki ya disbursements ka ne, wo isme hum consider nahi karthe aur jo kisi bhi business ne receive ka ne ya kisi bhi business ne cash ko, cash ke form me koi bhi payments ka ne, hum wo cash ke payments isme account for nahi karthe, cash payments ko account for karne ke liye, we have a separate financial statement which is called a cash flow statement and we are going to discuss it later. So basically jab hum income statement ko prepare karthe hain ya kisi bhi prepare hui bhi income statement ko analyze karthe hain ya dekhte hain, to hum me sab se pehle usme sales nazar aate hain, sales se hum dekhte hain net income generate wo aawa aur uske baad phir hum incomes per share, earnings per share ya EPS ki values ko calculate hotawa dekhte hain. So basically income statement me hum process dekhte hain, puri statement ke thru we explain the process or we demonstrate the process how the net revenues earned or realized by a company are transformed into the net earnings which can be in the form of profit or loss. So when I said that there are four major components of an income statement such as the revenues and the gains and we have the losses. So revenue kya hain ya gains hum kisko bolte hain to hum, hain maine paas revenue ke liye hum do taran ke classification isthimal karte hain. First one is the operating revenue and the other the next one is a non-operating revenue. When we say operating revenue it means the revenue realized thru the primary activities. So waab soche honge ke primary activity is kaunse hain aur secondary activity is kaunse hain. To suppose ek firm hain jo ke cement baanate hain, to cement ko manufacture karna uski primary activity hain. Magar agar suppose uske paas surplus funds pade hain aur wo open market me jaake ya jaake loan extend karte hain, wo hi surplus fund hain usko thode time period ke liye uske jo par interest kamaane ke liye ya sood kamaane ke liye usko extend karte hain to wo jo usme bhi maksat ke hi hain ke aap profit ko generate kar suke to basic maksat jo firm ka tha wo cement ko manufacture karna tha. To is example me we can say that manufacturing of the cement is the primary activity whereas extending the loan in order to generate some money in the form of interest ya sood is the secondary activity. Operating revenue ka matlab hain ke wo payasah ya revenue jo ke kisi firm ne apne primary activities ko perform karte wo generate kya hain. Iske ilawa hain humaira paas non-operating revenue hoti hain jo ke hain income statement ko tigaar karne mein account for karte hain when we say non-operating revenue to it is the revenue which is realized or earned through the secondary non-core business activities jese bhi aap ko masaal di ki aap loan extend karte usko bhi koi revenue generate karne jaane that would be considered as the non-operating revenue. Iske ilawa we do account for the gains or the other income which is earned by a company and it is it becomes a part of the income statement or when we say gains aur other income to us me kis kisam ki entries liye jaati hain consider ki jaati hain ya kis kisam ki aap account for karte hain transactions ko to it is the net money which is made from other activities such as the sale of long-term activities ap gains me aur abhi jo main aap ke liye term bola tha operating revenue and non-operating revenue us me fark hain ke when we account for the gains or the income from other sources us me hain syruf or syruf wo activities ko account for karte hain jo ke once activity perform uti hain once in a time activity perform uti for example kisi bhi company ke paas transportation ke liye koi buses the avans the koi purana equipment hai aur aap ne wo equipment ko bhech diya to us se jo aap ko money generative generator ya wo gains aur other income ke head me account for ki jaayi ki so this will not be considered as a non-operating income so non-operating income ka matlab hai ke you have whenever you have enough cash with you you can extend it in the form of loans to revenue to generate some sort of revenue in the form of interest but here we are talking about once in all times revenue generation which will be considered as the gains or other income jay se aap ne koi equipment jo aap ke istamaal me aap nahi hai ya purana ho gaya aap ne wo usko bhech diya koi aap ke paas piece of land pada tha jis ke upar initially suppose you plan ke haam is ke upar koi extend karenge aap ne plant koi aap koi aap koi lekin later on you decided ke haamare expansion ke ya koi aap plans nahi hai to hame aap paas jo unutilized land pari hai aap usko bhech diya hai to wahas se jo aap ko income generate oga aap usko account for karenge gains aur other income ke head me so issitara se aap ne koi subsidiary company banai ya wahas se agar aap koi income generate oriya to aap usko bhe gains ya other income ke head me account for kar sakte hain. Then we are going to discuss ke what are the various types of expenses that are accounted for in an income statement to me ne bhi aap ko bola tha that we need to categorize that when we are talking about the expenses or the revenues that are being generated by a firm to wo primary activity se generate ore ya secondary activity will be that that type of activity jo ke main purpose establish karne kaya main purpose of or the main objective of the firm nahi hai. So if the if we are talking about any economic activity jisse money generate ore ya money expend ore ya spent ore a expenses jaane aur wo aap ka main purpose hai to that would be considered as a primary activity. So again as we discussed that the revenues can be of two types. The operating revenue and the from the primary activity and the from and the revenue from the secondary activity. Similarly, hain expenses ko bhi account for karte hain primary activity expenses aur isme generally hain chaar major tara ke expenses ko account for karte hain. Sab se pehli jo aap ke expense hain, wo aap ne jo bhi cheeze bechi hain, in a here uski overall total cost kite hai hain aap usko account for karte hain and this is abbreviated as COGS. So this is cost of goods sold one. Secondly aap isme account for karne ge when you are taking into a consideration the primary activity expenses to dosi jo cheeze hain hain hain account for karne ge that is a general selling and administrative expenses and this is abbreviated as GS and A aur tisere cheeze jo aap isme account for karne ge that is a depreciation jo aap ke paas jo bhi equipment hain. We know ke jab hain usko buy karte hain after a year or after whatever number of years jab aap usko istimal karne ge ya nahin kare to aap uski jo value hain. Initial cost jisko aap ne beer kya tha usko buy karne ge liye wo uske baraabar nahin rahe ge over the period of time it will depreciate. So aap ne isme jo account for karne ge income statement ke andar amount that that would be the cost of that would be the value of depreciation. So jo bhi aap ke assets hain tangible assets hain. Aap bun ke opar koi bhi jo aap na aap ka jo way hain depreciation ke allowance ko deduct karne ke liye aap usko consider karne jaare hain. Jo chothi tara ki expense aap ne account for karne hai that is the R&D expenses. So there are various firms aur various sectors jaha R&D expensive kaafi bade significant portion ke hote hain. So the four type of expense which is considered in the income statement is the R&D expense. Iske lawa aap bhijhme taxes ko bhi consider karte hain dividends jo bhi aap ne diye hain shareholders ko aap usko account for karne ge. So this is how we formulate the primary activity expenses. Next you are going to consider the secondary activity expenses and then you are considered the losses also if a company is realizing the losses. To secondary activity expenses me wo tamaham expenses jo ke jo aap ka primary purpose ne hi hain business ka non-core business activities hain usse jo bhi aap ko expenses uske obar aap ne beer kye hain that will be considered as a secondary activity expenses. Then you are going to consider the losses and they will be also accounted for as the expenses. So wo tamaham expenses jo ke koi bhi aasi activity hui hain jaha nukhsaan ho gaya loss ho gaya usko hain account for karne ge aur usko as an expense show karne ge. So this could be any unusual cost or expenses jese aap ko apne zameen ke upar koi kabzah hain kiliye ya koi bhi aur legal issue ko solve karne ke baas te aap ko koi fee dena padaya toh that would be also considered as an expense. So all these expenses and the various types of revenues are accounted for in order to generate the income statement.