About this lesson
The Earnings Statement is a financial report that shows business profitability over some time period. This lesson will focus on the revenue portion of the Earnings Statement.
Earnings Statement Part 2
The Earnings Statement is a financial report that shows business profitability over some time period. This module will focus on the revenue portion of the Earnings Statement.
When to Use Earnings Statements
The Earnings Statement is prepared for a time period typically a month, quarter, or year. It shows the sales and expenses during that time and ultimately whether or not the company made money (profit) during that time.
- All financial transactions for a time period are accumulated and shown on the Earnings Statement.
- The revenue transactions are placed in one category.
- The expense or cost transactions are normally placed in multiple categories.
- After the expenses have been subtracted from the revenue, the remainder is called Earnings, Net Income or Profit
- Revenue transactions are included if their timing attribute is within the period represented by the Earnings Statement.
- If cash basis, the timing is based upon receiving payment for the sale.
- If accrual basis, the timing is based upon the delivery of goods or services to a customer.
- The total revenue is typically “net revenue” which would be the sales minus any discounts or sales incentives.
- The total revenue will typically include any one-time special sources of revenue, such as selling intellectual property rights.
- Total Revenue is often referred to as “Top Line” since it is the top line of the Earnings Statement. When someone talks about “Top Line Growth” they are referring to increases in sales.
- Most companies strive to maximize total revenues. There are three ways to increase revenue:
- Increase the number of items sold.
- Increase the price of the items that are sold.
- Reduce any discounts offered on the items that are sold.
Hints and Tips
- All transactions are recorded either using the cash basis or the accrual basis – never mix these on a statement.
- Companies may break their revenues into further subcategories to ease analysis.
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