A Comprehensive Guide to your Earnings Statement
What Is an Earnings Statement?
An earnings statement is a report outlining how much an employee has been paid over a particular pay period. It details gross earnings, then lists deductions taken out of your payments for taxes and other withholding purposes. Earnings statements are sometimes also referred to as paystubs. You can easily generate paystubs for your business or company through online paystub generators.The earnings statement documents a company's profitability and shows how much money it made or lost. The earnings statement shows earnings over time so that interested parties may see how the firm is doing during a certain time period.Earnings statement typically shows three accounting periods: the current one plus the two preceding ones. The three-period span allows consumers to evaluate the company's earnings changes over time.Earnings Statement vs. Balance Sheet
The earnings statement and the balance sheet are two distinct financial reports. Balance sheets present assets, liabilities, and equity at a single moment in time, whereas earnings statements present revenue and costs over time. They have several line items and are used to track various elements of financial performance.A balance sheet summarizes a company's assets, liabilities, and equity in order to evaluate if it has sufficient liquidity to meet its financial commitments. It is a snapshot of the company's financial position at a specific moment in time.In addition, the earnings statement examines revenue and costs over a 12-month accounting period. It shows the company's net profit or loss for that time period. The earnings statement is primarily used to examine if the company has enough earnings to cover its liabilities.Format of an Earnings Statement
Earnings statements are classified into two types: single-step earnings statements and multi-step earnings statements. The earnings statement, regardless of the form, has five main components.- Sales or revenue: The total amount received through the sale of the company's products or services. It is the sum of all sales or revenue accounts. The phrases sales and revenues may be used interchangeably in the report's top line. Any option is acceptable.
- Cost of goods sold: The total amount paid to purchase or manufacture the items or goods sold within the specified time period.
- Gross profit: The amount of money produced by a firm before operating expenses, calculated by deducting the cost of items sold from sales or revenue.
- Salary, administrative fees, utilities, and advertising are examples of operating expenditures.
- Net earnings or loss: Whether the firm made a profit or a loss during the specified time period, calculated by deducting total expenses from gross profit.