# How to calculate service revenue on income statement

The income statement formula consists of the three different formulas in which the first formula states that the gross profit of the company is derived by subtracting the Cost of G

The income statement formula consists of the three different formulas in which the first formula states that the gross profit of the company is derived by subtracting the Cost of Goods Sold from the total Revenues, and the second formula states that the Operating Income of the company is derived by subtracting the Operating Expenses from the total gross profit arrived. Finally, the last formula states that the Net income of the company is derived by adding the Operating Income with the net value of the non-operating items of the company.

## What is the Income Statement Formula?

The term income statement refers to one of the three primary financial statements the company uses to summarize its financial performance over the reporting periodReporting PeriodA reporting period is a month, quarter, or year during which an organization's financial statements are prepared for external use uniformly across a period of time in order for the general public and users to interpret and evaluate the financial statements.read more. The income statement is also referred to as the statement of earnings or profit and loss (P&L) statement. This income statement formula calculation is done by single or multiple steps.

In the case of a single step, the income statement formula is such that the net income is derived by deducting the expenses from the revenues. Mathematically, it is represented as,

Net Income = Revenues  Expenses

In the case of multiple steps, first, the gross profit is calculated by subtracting the cost of goods soldCost Of Goods SoldThe Cost of Goods Sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company. read more from revenues. Then the operating income is computed by deducting operating expensesOperating ExpensesOperating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit.read more from gross profit, and finally, the net income calculation is done by adding operating income and non-operating items.

Income Statement Formula is represented as,

• Gross Profit = Revenues  Cost of Goods Sold
• Operating Income = Gross Profit  Operating Expenses
• Net income = Operating Income + Non-operating Items

The income statement formula under the multiple-step method can be aggregated as below,

Net income = (Revenues + Non-operating items)  (Cost of goods sold + Operating expenses)

• What is the Income Statement Formula?
• Explanation of the Income Statement Formula
• Example of Income Statement Formula (with Excel Template)
• Relevance and Use of Income Statement Formula
• Recommended Articles

For eg:
Source: Income Statement Formula (wallstreetmojo.com)

### Explanation of the Income Statement Formula

Under the single-step method, the formula for income statement calculation is done by using the following steps:

1. Firstly, the profit and loss statement has to note the total of all the revenue-generating sources.
2. Next, determine the cost of goods sold from the profit and loss account. The cost of goods sold primarily includes raw material costs. In this step, the gross profit can be calculated by deducting the cost of goods sold from the revenues. It is as shown below:
Gross profit = Revenues  Cost of goods sold
3. Next, the operating expenses are also collected from the income statement. Operating expenses primarily include selling expenses, administrative expenses, etc. In this step, the operating income can be calculated by deducting operating expenses from the gross profit, as shown below.
Operating income = Gross profit  Operating expenses
4. Next, determine the non-operating items such as interest income, one-time settlements, etc. Finally, the net income calculation is done by adding the net of non-operating items (= non-operating income  non-operating expense) to the operating income, as shown below.
Net income = Operating income + Non-operating items

Below is data for the calculation of Apple Inc.s annual report.

Gross Profit

Therefore, Gross ProfitGross ProfitGross Profit shows the earnings of the business entity from its core business activity i.e. the profit of the company that is arrived after deducting all the direct expenses like raw material cost, labor cost, etc. from the direct income generated from the sale of its goods and services.read more can be calculated as,

Gross profit = Net salesNet SalesNet sales is the revenue earned by a company from the sale of its goods or services, and it is calculated by deductingreturns, allowances, and other discounts from the company's gross sales.read more  Cost of goods sold

= \$215,639 Mn \$131,376 Mn

Gross Profit for 2016 will be

Gross Profit for 2016 =\$84,263

Operating Income

Therefore, Operating Income can be calculated as,

Operating income = Gross profit  Operating expenses

= \$84,263 Mn \$10,045  \$14,194

Operating Income for 2016 will be

Operating Income for 2016 =\$60,024

Net Income

Therefore, Net Income can be calculated as,

Net income = Operating income + Non-operating items

=\$60,024 Mn +\$1,348 \$15,685

Net Income for 2016 will be

Net Income for 2016 =\$45,687

Similarly, we can calculate gross profit, operating income, and net income for 2017 & 2018, and also, you can refer to the below given excel template for the same.

### Relevance and Use of Income Statement Formula

Understanding the income statement formula is very important for people interested in actively trading in the stock market or analysts who investigate a particular companys financial performance. Therefore, they must know how to read financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairsover a givenperiod (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more, including the income statement.

One should note that net income is not the same as cash profit. Nevertheless, the ability of a company to generate healthy net income over a long period can be seen as a positive for its stock and bond prices because it is the net income that compensates the shareholdersThe ShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company's total shares.read more for the risks they have taken. Conversely, if a company cannot generate enough profit, then the value of the stock is likely to plummet. In short, a company with healthy earningsEarningsEarnings are usually defined as the net income of the company obtained after reducing the cost of sales, operating expenses, interest, and taxes from all the sales revenue for a specific time period. In the case of an individual, it comprises wages or salaries or other payments.read more will have higher stock and bond prices.