An income statement, also known as a profit and loss statement, is a financial statement that summarizes a company’s revenues, expenses, and net income over a specific period of time, typically a quarter or a year.
The income statement starts with the company’s total revenues for the period, which includes all income generated from the sale of goods or services. The cost of goods sold is then deducted from the revenues to arrive at the gross profit. Gross profit is the amount of money that the company earns after deducting the cost of producing and delivering its goods or services.
After calculating the gross profit, the income statement deducts all operating expenses, such as rent, salaries, and utilities, to arrive at the operating income. Other income and expenses, such as interest income and expenses, taxes, and depreciation, are then added or subtracted to arrive at the company’s net income.
The income statement provides an important snapshot of a company’s financial performance over a specific period. It can be used to evaluate the company’s revenue and expense trends, assess profitability, and make important financial decisions. It is also a key component of a company’s financial reporting, as it is often required by investors, lenders, and other stakeholders to evaluate the company’s financial health.
