Getting Started: The Income Statement

A multi-step income statement is a little bit more complex in that it differentiates between operating and nonoperating activities. Operating activities are any activities that are core to a company's business. For example, if you own a clothing store, your clothing sales, store rent and manufacturing costs would all be operating activities. Nonoperating activities are anything else (this typically includes things like investment income or losses) that affects your store's income.

Most public companies use a multi-step income statement. To see a breakdown of a multi-step income statement, take a look at "The Finance Professor: How to Read an Income Statement."

What is Revenue?

Revenue is the money that a company brings in. Depending on the type of company, revenue may also be referred to as sales, but the idea is the same: It's the total amount of money made by a company. For example, as an individual, your revenue is your (gross) income before taxes.

In addition to sales, common revenue items include rent revenue (if a company rents property to others), investment revenue and interest revenue.

Sales are reported net, which means that a company takes its total sales for the year and subtracts all of their product returns and exchanges. This produces a number that's representative of the company's true sales.

Companies recognize revenue after they do whatever they need to do to earn it -- regardless of whether they've actually received any cash yet. That means that if I own a construction company, I would recognize my construction revenue as soon as the job is complete, even if I'm still waiting on my check from the client. So while revenue means that I'm making money, it doesn't necessarily mean that I've got the cash in hand (or in the bank).