Income Statement
Definition
The income statement (P&L) shows a company's revenue, expenses, and profit over a period (a quarter or year). A standard structure runs: revenue, minus cost of goods sold, equals gross profit; minus operating expenses (SG&A, R&D, D&A), equals operating income (EBIT); minus net interest expense and plus/minus other items, equals pre-tax income; minus taxes, equals net income.
It is prepared on an accrual basis: revenue is recognized when earned and expenses when incurred, not when cash changes hands. That means net income is not cash flow — a highly profitable company can still run out of cash.
Key line items interviewers focus on include revenue, gross profit, EBIT, and net income, plus non-cash charges like depreciation and stock-based compensation embedded within expense lines.
Why interviewers ask
Interviewers use the income statement as the anchor for statement-linkage questions and for margin analysis. A common trap is treating net income as cash, or misplacing items — e.g., interest expense sits below EBIT, and only items that are (a) on the income statement and (b) tax-affected should change net income in the classic $10 depreciation question.
Related terms
Interviews don't test definitions — they test recall under pressure.
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