The Income Statement

The Purpose An income statement reports a business’s income and expenses for a fiscal period An income statement reports a business’s income and expenses for a fiscal period It is sometimes called the profit loss statements, the statement of income and expenses, or the statement of earnings It is sometimes called the profit loss statements, the statement of income and expenses, or the statement of earnings

Income Money that is earned by the business from a variety of sources Money that is earned by the business from a variety of sources Sometimes called revenue Sometimes called revenue

Expenses The money the business has spent in order to produce income The money the business has spent in order to produce income This includes salaries, rent, daily operating costs and cost of supplies This includes salaries, rent, daily operating costs and cost of supplies

Difference between Expenses and Liabilities Expenses have already been paid, liabilities have not Expenses have already been paid, liabilities have not Expenses are on the income statement because they must be subtracted from the income during a given period Expenses are on the income statement because they must be subtracted from the income during a given period Liabilities appear because they are a claim by creditors against the value of the business until they are paid Liabilities appear because they are a claim by creditors against the value of the business until they are paid

What does an Income Statement Tell you? Net income of a business is total income minus total expenses Net income of a business is total income minus total expenses You can see trends in expenses – where does the money go – You can see trends in expenses – where does the money go – Income statements can also help forecast the future of the business – what will the income be, say, a year from now Income statements can also help forecast the future of the business – what will the income be, say, a year from now It also updates the balance sheet It also updates the balance sheet