What is the income statement?

Definition of Income Statement

The income statement is also known as the statement of operations, profit and loss statement, and statement of earnings. It is one of a company's main financial statements. The purpose of the income statement is to report a summary of a company's revenues, expenses, gains, losses, and the resulting net income that occurred during a year, quarter, or other period of time.

Examples of Items Appearing in the Income Statement

The main items reported in the income statement are:

  • Revenues, which are the amounts earned through the sale of goods and/or the providing of services
  • Expenses, which include the cost of goods sold, SG&A expenses, and interest expense
  • Gains and losses, such as the sale of a noncurrent asset for an amount that is different from its book value
  • Net income, which is the result of subtracting the company's expenses and losses from the company's revenues and gains. Corporations with shares of common stock that are publicly traded often refer to net income as earnings and their income statements must include the earnings per share of common stock

How the Income Statement Amounts are Calculated

The income statement amounts are best calculated for a specific period of time by using the accrual basis of accounting. Under the accrual basis the revenues are the amounts that were earned (not the amount of cash received), and the expenses are the amounts that best match the revenues or were used up during the period (not the cash that was paid out).

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