The statement is often used at the end of a business period (monthly, quarterly or annually). Unlike the balance sheet that looks at a particular time period, the purpose of an income statement is to see how much a business earned and spent in a specific accounting period. At its most simple, the calculation for an income statement is: Income = Revenue – Expenses What is an Income Statement Used For?
The income statement equation shows the profits that were obtained through revenue and expenses. This statement summarizes the historical financial results of a business’s revenues and expenses over a selected period of time. Even if you aren’t a numbers person by ignoring this statement you don’t have the data on whether the business is profitable or not and are potentially overlooking opportunities to make more money.
When running a business, it’s important to evaluate the profitability of your business. It is also the first one you need to build because the rest of the basic financial statements are partially built off of it. The Income Statement which is often referred to as a Profit and Loss Statement or P&L Statement, is probably the most commonly used financial statement and is also one of the easiest of the three primary financial statements ( Income Statement, Cash Flow Statement and Balance Sheet) to read and fill out.
Do you need to see how to format an income statement, looking for an example or want to download a free sample template? Everything you need to know about an income statement is right here!