1. FINANCIAL STATEMENT ANALYSIS
INCOME STATEMENT
(The Statement of Total Income)

2. Financial Statements Income Statement
Income Statement X X1
I. Sales
II. Cost of Goods Sold (-)
Gross Profit/Loss
III. Operating Expenses (-)
- General Administrative Expenses
- Marketing and Selling Expenses
Operating Profit/Loss
IV. Other Revenue and Income
- Income from participating interests
- Interest Income
- Write-downs of provisions
- Marketable Securities Sales Profit
- Exchange profit
IV. Other Expense and Loss
- Provision Expenses
- Exchange Loss
- Marketable Securities Sales Loss
V. Interest Expense
Profit/Loss of the Period (Profit/Loss Before Tax )
Tax Expense (-)
Net Profit/Loss of the Period (Profit/Loss After Tax)
The financial information about the financial performance of the entity is disclosed in Statement of Comprehensive Income (INCOME STATEMENT). Profit is one of the significant issue in determining the financial performance of the entity. Earnings per share, return on investment are also used to evaluate performance.

3. Financial Statements Income Statement
The definition of income involves both revenue and gains. Revenue arises from the ordinary activities of the entity. Revenue is termed in different names as sales, fees, interest, dividends, royalties and rent. To be reported, revenue must be measurable, realized and earned. Revenue usually result in an increase in cash or accounts receivable.
For example: ABC Co. sold goods TL which cost is TL and received a note which matures on the 3rd of February. Entries will be as follows:
Accounts Receivable
30.000
Sales

4. Financial Statements Income Statement
Gains represent increases in economic benefits and gains are no different in nature from revenue.
Gains include revenues like;
“Gains of Sale of Tangible Assets” or
“Marketable Securities Sale Profit”

5. Financial Statements Income Statement
Expenses are the increase in liabilities or decrease in assets that occur in order to earn revenue. The definition of expenses involves losses as well as expenses that arise from ordinary activities of the entity. Expenses include, for example, cost of sales, wages and depreciation. Losses represent decreases in economic benefits.

6. Financial Statements Income Statement
The definition of expenses also includes unrealized losses (probable losses) for example, When losses are recognized in the income statement, they are usually displayed separately (according to their nature or function) in order to make proper economic decisions.

7. Assets ABC CO. Balance Sheet 1.1.20X1 Liabilities
Financial Statements Income Statement
Assets ABC CO. Balance Sheet X Liabilities
I. Current Assets
130
III. Current Liabilities 40
Cash and Equivalents 50
Accounts Payable
Accounts Receivable
IV. Non-Current Liabilities 60
Inventories
Financial Liabilities
II. Non-Current Assets
170
V. Equity
200
Property Plant and Equipment
Stockholders’ Equity
Total Assets
300
Total Liabilities
To illustrate how the balance sheet and income statement reflects profitable operations consider the example stated above. Initial balance sheet of the ABC Co. is stated on the left.

8. Assets ABC CO. Balance Sheet 1.1.20X1 Liabilities
Financial Statements Income Statement
Assets ABC CO. Balance Sheet X1 Liabilities
I. Current Assets
140
III. Current Liabilities 40
Cash and Equivalents 80
Accounts Payable
Accounts Receivable
IV. Non-Current Liabilities 60
Inventories 20
Financial Liabilities
II. Non-Current Assets
170
V. Equity
210
Property Plant and Equipment
Stockholders’ Equity
200
Profit/Loss 10
Total Assets
310
Total Liabilities
ABC Co. sold goods 30 TL in cash and the cost of goods sold is 20 TL. The net profit of sales is 10 TL. After sales the balance sheet of the company will be changed as reported on the left.
Revenue results as an increase in assets and expense results as a decrease in assets. Sales caused an increase in cash, cost of goods sold caused a decrease in inventories.

9. Financial Statements Income Statement
Income Statement X X1
I. Sales
II. Cost of Goods Sold (-)
Gross Profit/Loss
III. Operating Expenses (-)
- General Administrative Expenses
- Marketing and Selling Expenses
Operating Profit/Loss
IV. Other Revenue and Income
- Income from participating interests
- Interest Income
- Write-downs of provisions
- Marketable Securities Sales Profit
- Exchange profit
IV. Other Expense and Loss
- Provision Expenses
- Exchange Loss
- Marketable Securities Sales Loss
V. Interest Expense
Profit/Loss of the Period (Profit/Loss Before Tax )
Tax Expense (-)
Net Profit/Loss of the Period (Profit/Loss After Tax)
Matching Principle This income statement principle is directly related with periodicity concept. In order to provide accurate net income figure, the expenses incurred to earn the revenues must be recognized during the accounting period related with expenses of reported period (Periodicity Concept).

10. Financial Statements Income Statement
Income Statement X X1
I. Sales
II. Cost of Goods Sold (-)
Gross Profit/Loss
III. Operating Expenses (-)
- General Administrative Expenses
- Marketing and Selling Expenses
Operating Profit/Loss
IV. Other Revenue and Income
- Income from participating interests
- Interest Income
- Write-downs of provisions
- Marketable Securities Sales Profit
- Exchange profit
IV. Other Expense and Loss
- Provision Expenses
- Exchange Loss
- Marketable Securities Sales Loss
V. Interest Expense
Profit/Loss of the Period (Profit/Loss Before Tax )
Tax Expense (-)
Net Profit/Loss of the Period (Profit/Loss After Tax)
Sales Revenue Sales Revenue is the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the "top line" or "gross income" figure of income statement from which costs are subtracted to determine net income. Sales revenue involves the domestic sales, external sales and service revenue.

11. Financial Statements Income Statement
Income Statement X X1
I. Sales
II. Cost of Goods Sold (-)
Gross Profit/Loss
III. Operating Expenses (-)
- General Administrative Expenses
- Marketing and Selling Expenses
Operating Profit/Loss
IV. Other Revenue and Income
- Income from participating interests
- Interest Income
- Write-downs of provisions
- Marketable Securities Sales Profit
- Exchange profit
IV. Other Expense and Loss
- Provision Expenses
- Exchange Loss
- Marketable Securities Sales Loss
V. Interest Expense
Profit/Loss of the Period (Profit/Loss Before Tax )
Tax Expense (-)
Net Profit/Loss of the Period (Profit/Loss After Tax)
Cost of Goods Sold An income statement figure which reflects the cost of obtaining raw materials and producing finished goods that are sold to consumers. Cost of Goods Sold = Beginning Inventory + Net Purchases of Merchandise or Cost of Finished Goods – Ending Inventory.
Beginning Merchandise Inventory
150 TL
Net Purchases of Merchandise
500 TL
Ending Merchandise Inventory
(200 TL)
Cost of Goods Sold
450 TL

12. Operating Expenses (OPEX)
Financial Statements Income Statement
Income Statement X X1
I. Sales
II. Cost of Goods Sold (-)
Gross Profit/Loss
III. Operating Expenses (-)
- General Administrative Expenses
- Marketing and Selling Expenses
Operating Profit/Loss
IV. Other Revenue and Income
- Income from participating interests
- Interest Income
- Write-downs of provisions
- Marketable Securities Sales Profit
- Exchange profit
IV. Other Expense and Loss
- Provision Expenses
- Exchange Loss
- Marketable Securities Sales Loss
V. Interest Expense
Profit/Loss of the Period (Profit/Loss Before Tax )
Tax Expense (-)
Net Profit/Loss of the Period (Profit/Loss After Tax)
Operating Expenses (OPEX)
A category of expenditure that a business incurs as a result of performing its normal business operations.
One of the typical responsibilities of management is determining how low operating expenses can be reduced without significantly affecting the firm's ability to compete with its competitors.
In the absence of raising prices or finding new markets or product channels in order to raise profits, some businesses attempt to increase the profit by cutting expenses.
Examples of Operating Expenses are;
Research and Development Expenses,
Marketing and Distribution Expenses,
General Administrative Expenses.

13. Financial Statements Income Statement
Income Statement X X1
I. Sales
II. Cost of Goods Sold (-)
Gross Profit/Loss
III. Operating Expenses (-)
- General Administrative Expenses
- Marketing and Selling Expenses
Operating Profit/Loss
IV. Other Revenue and Income
- Income from participating interests
- Interest Income
- Write-downs of provisions
- Marketable Securities Sales Profit
- Exchange profit
IV. Other Expense and Loss
- Provision Expenses
- Exchange Loss
- Marketable Securities Sales Loss
V. Interest Expense
Profit/Loss of the Period (Profit/Loss Before Tax )
Tax Expense (-)
Net Profit/Loss of the Period (Profit/Loss After Tax)
Other Income and Gains
The income and gains occurred from a company’s continuing activities.
Other revenues consist of revenues arisen from other activities, like financing and investing.
Under capital maintenance concept, gains are increases in the prices of assets held over the period.
Followings are the example of other income and gains;
Gains from exchange of foreign currency,
Gains from sale of property, plant and equipment,
Gains from sale of investments,
Write-downs of provisions
Interest and commission income

14. Other Expense and Losses
Financial Statements Income Statement
Other Expense and Losses
Expenses from other operating activities are referred to non-operating expenses and losses. Other expense and losses include expense and loss accounts that are due to the transactions other than the primary operations of the company. Followings are the example of other expense and losses:
Interest expense,
Loss on exchange of foreign currency,
Loss on sale of marketable securities,
Loss on sale of property, plant and equipment,
Write-downs of receivables, inventories and property, plant and equipment
Provision expenses.
Income Statement X X1
I. Sales
II. Cost of Goods Sold (-)
Gross Profit/Loss
III. Operating Expenses (-)
- General Administrative Expenses
- Marketing and Selling Expenses
Operating Profit/Loss
IV. Other Revenue and Income
- Income from participating interests
- Interest Income
- Write-downs of provisions
- Marketable Securities Sales Profit
- Exchange profit
IV. Other Expense and Loss
- Provision Expenses
- Exchange Loss
- Marketable Securities Sales Loss
V. Interest Expense
Profit/Loss of the Period (Profit/Loss Before Tax )
Tax Expense (-)
Net Profit/Loss of the Period (Profit/Loss After Tax)

15. Financial Statements
Income Statement- The Statement Of Profit Or Loss And Other Comprehensive Income-IAS 1
INCOME STATEMENT
Current Period
Revenue X
Other income
Changes in inventories of finished goods and work in progress
(x)
Raw materials and consumables used
Employee benefits expense
Depreciation and amortization expense
Other expenses
Total expenses
(X)
Profit before tax
International Accounting Standard 1 Presentation of Financial Statements (IAS 1)
As stated before IAS 1 does not prescribe the order or format in presenting income statement.
The statement of profit or loss and other comprehensive income (statement of comprehensive income) shall present, in addition to the profit or loss and other comprehensive income sections:
profit or loss;
total other comprehensive income;
comprehensive income for the period, being the total of profit or loss and
other comprehensive income.

16. Financial Statements
Income Statement- The Statement Of Profit Or Loss And Other Comprehensive Income-IAS 1
What Is Comprehensive Income Comprehensive income is the change in a company's net assets from non-owner sources over a specified period of time. Comprehensive income comprises from net profit/loss of the period and other comprehensive income. Net profit/loss of the period includes all income and expenses recognized during that period. Net income (net profit/loss of the period) is reported on the income statement and is included in the retained earnings section of stockholders’ equity. Other comprehensive income includes unrealized gains and losses on certain investments in securities, foreign currency items, and certain pension liability adjustments.

17. Financial Statements
Income Statement- The Statement Of Profit Or Loss And Other Comprehensive Income-IAS 1
The profit or loss section or the statement of profit or loss shall include line items that present the following amounts for the period:
revenue (sales revenue)
cost of goods sold
financial income
finance costs
share of the profit or loss of associates and joint ventures accounted for using the equity method;
any gain or loss arising from a difference between the previous carrying amount and its fair value at the reclassification date
tax expense
a single amount for the total of discontinued operations

18. Financial Statements
Income Statement- The Statement Of Profit Or Loss And Other Comprehensive Income-IAS 1
INCOME STATEMENT
Current Period
Revenue X
Other income
Changes in inventories of finished goods and work in progress
(x)
Raw materials and consumables used
Employee benefits expense
Depreciation and amortization expense
Other expenses
Total expenses
(X)
Profit before tax
An entity shall present additional line items, headings and subtotals in the statement(s) presenting profit or loss and other comprehensive income when such presentation is relevant to an understanding of the entity’s financial performance. An entity shall not present any items of income or expense as extraordinary items, in the statement(s) presenting profit or loss and other comprehensive income or in the notes.

19. Financial Statements
Income Statement- The Statement Of Profit Or Loss And Other Comprehensive Income-IAS 1
INCOME STATEMENT Current Period
Revenue X
Other income
Changes in inventories of finished goods and work in progress
(x)
Raw materials and consumables used
Employee benefits expense
Depreciation and amortization expense
Other expenses
Total expenses
(X)
Profit before tax
An entity shall present an analysis of expenses recognized in profit or loss using a classification based on either their nature (çeşit esası) or their function (fonksiyon esası) within the entity, whichever provides information that is reliable and more relevant. The first form of income statement is the ‘nature of expense’ method.

20. Financial Statements
Income Statement- The Statement Of Profit Or Loss And Other Comprehensive Income-IAS 1
The second form of analysis is the ‘function of expense’ or ‘cost of sales’ method and classifies expenses according to their function as part of cost of sales or cost of operating and administrative activities.
INCOME STATEMENT
Current Period
Revenue X
Cost of sales
(X)
Gross profit
Other income
Research and Development Costs
Marketing and Selling Costs
Administrative expenses
Other expenses
Profit before tax

21. Financial Statements
Income Statement- The Statement Of Profit Or Loss And Other Comprehensive Income-IAS 1
An entity classifying expenses by function shall disclose additional information on the nature of expenses, including depreciation and amortization expense and employee benefits expense. The “function base” have been preferred in Turkey.
INCOME STATEMENT
Current Period
Revenue X
Cost of sales
(X)
Gross profit
Other income
Research and Development Costs
Marketing and Selling Costs
Administrative expenses
Other expenses
Profit before tax

22. Comparative presentation of presentation forms of income statement
Function Basis
20X1
Nature Basis
Sales Revenue
Cost of Goods Sold
Other Income
Gross Profit x
Changes in inventories of finished goods and work in progress
Other Operating Income
Raw materials and consumables used
Distribution Expense
Employee benefits expense
Administrative Expenses
Depreciation and amortization expense
Other Operating Expenses
Other operating expenses
Operating Profit/Loss
Result of investments accounted for at equity
Other Investment Gains and Loss
Finance Cost
Finance Income
Profit or Loss Before Tax
Tax
Net Profit from Continuous Operations
Discontinued Operations
Net Profit or Loss of The Period
Profit/Loss attributable to share holders
Profit/Loss attributable to non-controlling interests

23. Financial Statements Income Statement
Example : Prepare the income statement which is suitable for financial analysis by using the items listed below: TL
Sales
1.000
Beginning Inventory 50
Ending Inventory
100
Net Purchase of Current Period
400
Interest Income
Profit Reserves 35
Marketable Securities Sales Profit 40
Prepaid Expenses
Provision Expenses 20
Expence Accurals 25
Exchange Loss 10
General Administrative Expenses
150
Marketing and Selling Expenses
Dividend Income from Subsidiaries
Interest Expenses 60
Write-downs of provisions
Income Accruals 15
Tax Provisions of Current Period 80

24. II. Cost of Goods Sold (-) (350) - Beginning Inventory (+) 50
According to Uniform Accounting System Income Statement will be as follows:
Income Statement X1
I. Sales
1.000
II. Cost of Goods Sold (-)
(350)
- Beginning Inventory (+) 50
- Net Purchase of Current Period (+)
400
- Ending Inventory(-)
(100)
Gross Profit/Loss
650
III. Operating Expenses (-)
(250)
- General Administrative Expenses
150
- Marketing and Selling Expenses
100
Operating Profit/Loss
IV. Other Revenue and Income
140
- Dividend Income from Subsidiaries 40
- Interest Income
- Write-downs of provisions 10
- Marketable Securities Sales Profit
IV. Other Expense and Loss
(30)
- Provision Expenses 20
- Exchange Loss
V. Interest Expense
(60)
Profit/Loss of the Period (Profit/Loss Before Tax)
450
Tax Expense (Tax Provisions of Current Period) (-)
(90)
Net Profit/Loss of the Period (Profit/Loss After Tax)
360

25. According to IAS 1 Income Statement will be as follows:
ABC Co. Income Statement
20X1
Sales Revenue
1.000
Cost of Goods Sold
(350)
- Beginning Inventory (+) 50
- Net Purchase of Current Period (+)
400
- Ending Inventory(-)
(100)
Gross Profit/Loss
650
Operating Expenses
(250)
-Administrative Expenses
150
-Marketing and Selling Expenses
100
Other Operating Income
- Write-downs of provisions 10
- Marketable Securities Sales Profit 40
Other Operating Expenses
(30)
- Provision Expenses 20
- Exchange Loss
Operating Profit/Loss
420
Other Investment Gains and Loss
- Dividend Income from Subsidiaries
Finance Cost
(60)
Finance Income
- Interest Income
Profit or Loss Before Tax
450
Tax Expense of Current Period
(90)
Net Profit from Continuous Operations
360