The income statement is a key financial statement which reports on a company's profitability during a relatively short period of time such as the past year, month, 13 weeks, etc. The heading of the income statement informs the reader of the period covered.
The main components of the income statement are:
- Revenues.These are the amounts earned through the sale of goods and the providing of services.
- Expenses. These include the cost of goods sold, SG&A expenses, and interest expense.
- Certain gains and losses. One example is the disposal of a noncurrent asset for an amount that is different from its book value.
The income statement best measures a company's profitability when the accrual basis of accounting is used. Under this method the revenues are the amounts earned (not the cash received in the period). The expenses are the amounts that best match the revenues and the time period (not the cash that was paid during the period).
The income statement's bottom line (revenues and gains minus expenses and losses) is reported as net income or earnings. The income statement of a corporation with stock that is publicly traded will also report the earnings per share of common stock.
The income statement is also known as the statement of operations, results of operations, statement of earnings, and P&L (for profit and loss statement).