The income statement, line by line
By SuperdayReps · Wharton MBA · ex-Greenhill · investment banking interview coaching
6 min read · updated July 2, 2026
The income statement answers one question: did the company make money this period? It starts with sales at the top and strips off a layer of cost at every step until you reach profit at the bottom. That's why people call revenue "the top line" and net income "the bottom line."
But the order matters more than the arithmetic. Where a cost sits on the income statement tells you whether it's about running the business or about how the business is financed and taxed. Get that split and you understand not just this statement, but half of valuation.
Start at the top: revenue
Revenue (or "sales") is the total value of what the company sold in the period. One thing to lock in early: it's booked on an accrual basis. You record the sale when you earn it, not when the cash shows up. Ship the product in March, get paid in May, and the revenue is March revenue.
That gap between earning and collecting is the whole reason a separate cash flow statement exists. Profit on the income statement and cash in the bank are not the same number.
Keep reading
The rest of this lesson is free with an account
There's about 4 more minutes of The income statement, line by line below this, plus every other lesson in Accounting. Free account, no card.
Any partner school .edu
Frequently asked
- What is the income statement?
- The income statement answers whether a company made money this period. It starts with revenue at the top and strips off a layer of cost at each step, gross profit, then EBIT, then net income at the bottom. Revenue is booked on an accrual basis, when earned, not when the cash arrives.
- Why do interest and taxes sit below operating income?
- Because everything above EBIT is about running the business, while interest and taxes are about how it is financed and taxed. Interest reflects the capital structure, how much debt you chose to carry, and taxes reflect the jurisdiction. Two companies with identical operations can post very different net incomes from debt or tax rate alone.
- What are the three margins interviewers ask about?
- Gross margin is gross profit over revenue, showing pricing power and unit economics. Operating margin is EBIT over revenue, showing how profitable the core business is. Net margin is net income over revenue, what is left after everything. A wide gap between operating and net margin often signals a heavy debt load.
LearnAI