In this article, you will learn:
- What is an Income Statement
- Understanding the Income Statement
- Prepare an Income Statement
- Income Statement in Excel & PDF
- How to Write an Income Statement?
- Sample Income Statement
- What’s the Difference Between a Balance Sheet and Income Statement?
- Revenues and Gains
- Expenses and Losses
- Income Statement Structure
- Income Statement Example
- Reading Standard Statements
- Uses of Income Statements
Sample Income Statement in Excel Format Download Now
The income statement is one of the three basic financial statements of a company in addition to the balance sheet and cash flow statement. A proper understanding of these financial statements helps investors understand the profitability and financial soundness of a company.
That’s why a business entity needs to prepare financial statements in such a manner that provides a true and fair view of that company’s financial position.
While the income statement reveals the operational position of your company, the balance sheet showcases the financial strength of your business. The cash flow statement summarizes the underlying reasons for the changes in your business’s cash position between two balance sheet dates.
In this article, we’ll define what an income statement is, how to prepare an income statement, the uses of income statements, and how to read an income statement.
Also Read: Try QuickBooks Online Accounting Software
What Is an Income Statement?
An income statement is one of your business’s most important financial statements and showcases the profit earned or losses incurred by your business during an accounting period.
An income statement, also known as the trading and P&L account or revenue and expense summary, reveals the performance of your business entity within a specific accounting period.
The profits earned or losses incurred by your business are determined by subtracting operating and non-operating expenses from the revenues your business generates.
Accordingly, such a statement showcases your company’s revenues, costs, gross profit, selling, administrative expenses, other income and expenses, taxes, and net profit in a standardized format.
Thus, an income statement summarizes revenues, expenses, gains, and losses incurred by your business. An income statement begins with the sales generated by your business and ultimately determines the net profit earned or net loss incurred by your business.
Typically, your business’s income statement reveals how the revenues your business earns are turned into net earnings.