 Hello and welcome to the session. In this session we will discuss how to prepare and analyze income statement of a company. Now we will see what is an income statement. Income statement measures company's financial performance over a specific period of time quarterly or annually. In simple words we can say that it reports company's performance for a particular period that is whether the company is making profit or loss. It is also known as profit and loss statement or statement of revenue and expense. Income statement shows the net income of the company after all the expenses. Thus simple format for an income statement is revenue minus expenses is equal to net income. Now let us understand the concept of revenue and expenses. Now revenues are earned from the sales of goods or services. The revenues occur when the sale is made, the payment may or may not have been received. The examples of revenue are sales, service revenue and interest revenue. And expenses means the expenditure made by the company in order to produce goods or provide services to the customer. The expenses include salaries of employees, interest expense, depreciation, raw material used to produce the commodity or providing services etc. Now we are going to discuss the basic structure of income statement. The following items are included in forming the basic structure of income statement and first is revenues. It includes the money made by the company through sales or services offered. Next is cost of goods sold. It includes the money spent by the company in order to produce the goods or services offered. For example, the cost of raw material used in production of a commodity, wages of employees, electricity charges etc. Next is operating expenses which includes the money that was indirectly spent by the company before, during and after the production of the commodity in order to conduct business. For example, money spent on promotion of the product or services like advertisements, money spent on research and development, depreciation, the basic of the supporting staff like lawyers to handle legal issues, human resource managers etc. Then we have other income and expenses. A company may earn a revenue through other means like selling land etc. It may also have to incur other expenses like purchasing land etc. Next is interest income and expense. Company earns income from the interest on the money given by it to the lenders or from banks. This is called interest income. Also, if the company borrows money, then it has to pay interest on that money and it is called interest expense. Then we have income taxes. The last expense reported on the income statement is of income tax which the company pays to the government on its income. And lastly we calculate net income by subtracting all the expenses from the revenues earned from sales or rent revenue or interest income. The obtained net income will be the profit of the company. Now we consider the following income statement. Here we are given the income statement of XYZ company from January 2012 to April 2012 and we have to calculate its net income. Now we know that net income is given by revenue minus expenses. Now here we see that revenues are given by sales and expenses are given by cost of goods sold, operating expenses which include selling expenses and administrative expenses, interest expense and income tax. So net income will be given by sales minus cost of goods sold minus operating expenses minus interest expense minus income tax. This implies that net income is equal to $3000 minus $2325 minus $90 plus $120 the whole minus $100 minus $120. On solving this further we get the value as $245 so net income is given by $245. So net income of XYZ company for January 2012 to April 2012 is $245 and it will be written in the income statement. Now we should note that from the income statement we can find the following gross profit is given by revenue minus cost of goods sold. So here gross profit will be given by $3000 minus $2325 which is equal to $675. Also net operating income or earning before interest and taxes is given by revenue minus cost of goods sold minus operating expenses. So here earning before interest and taxes is equal to revenue that is $3000 minus cost of goods sold that is $2325 minus operating expenses that is given by $90 plus $120. On solving this further we get $465 so earning before interest and taxes is given by $465. Thus in this session we have discussed how to prepare and analyze income statement of a company. This completes our session. Hope you enjoyed this session.