Income Statement Explained

What is an Income Statement (Profit & Loss Report)?

An income statement is like a financial report card for a business. It shows how much money the company made (revenues) and how much it spent (expenses) over a specific period, usually a quarter or year. The main goal is to see if the company made a profit or suffered a loss. At the bottom, you'll find the "net income," which is the final number that tells you if the company is in the green (profit) or in the red (loss). It breaks down things like sales, cost of goods sold and operating expenses, helping investors, managers, and other stakeholders understand the business's financial health.

Actual account balances, and transactions such as loan repayments, do not feature on the income statement. Instead, the report focuses only on income and expense over the selected time-frame.

The income statement is an essential financial report next to the Balance Sheet.