The only real difference between a statement of operation and a statement of income is semantics. They are different labels given to a company's financial reports that lay out the company's key contributions to its net income. Also referred to as a profit and loss statement at times, because it shows the company's bottom line results for a given period, this report is usually a part of a group of reports prepared by accounting.
For-profit companies typically generate four common financial accounting reports – the balance sheet, statement of income, statement of cash flow and statement of owners' equity. The U.S. Securities and Exchange Commission requires publicly owned companies to release these reports to the public in the interest of open disclosure to shareholders and potential investors quarterly. This financial reporting package provides a look at the company's overall position and its possibilities for the future.
The statement of income, or the profit and loss statement as it is often referred to, breaks down total net income or loss into several contributing categories. The initial section of the statement shows gross profit, reports Accounting Coach. This represents the difference between sales for the period and cost of goods sold. Income statement items in the cost of goods sold category includes the materials, supplies and direct labor as well as any ancillary costs such as freight, that go into making the product. This section alone offers a glimpse of how well the company turns sales into income. To earn a net profit, gross profits must exceed total fixed costs for administrative and operation expenses.
Advertisement Article continues below this adThe term, "statement of operation" stems from the operating income section of the income statement, which constitutes a major component of the net income calculation for the company. Following the gross profit section is the calculation of operating income or loss. This section displays fixed expenses involved in conducting primary income-generating business activities. These commonly include selling expenses, administrative expenses and other general operations expenses. To arrive at the operating income, subtract these expenses from gross profit.
Most businesses commonly use "income statement" or "statement of income" when describing this important financial statement. It's because the culmination of the report is a total net income or loss for the period. Accountants can arrive at this number after including additional non-operating activities such as financing and investing income or expense. Sometimes, companies have significant one-time non-operating transactions that can result in a net income or loss completely different from operating income. Typically, the company will explain the extraordinary circumstances to provide a better sense of what the public can expect from regular business activities going forward in notes and reports that accompany a company's financial statements.