The income statement, or Profit & Loss statement, breaks down all the financial performance for a given period of time. It can be set up to track activity over any period but is usually prepared monthly, quarterly, and annually. Items in the income statement can be thought of as what accounts for the change in balance sheet items between periods and ultimately the owner’s equity. The major items are:
- Revenue – This amount is composed of all sales numbers. Both credit and cash sales are included.
- Expenses – Any costs to the business recognized during the period. This can include any administrative costs that aren’t paid ahead of time, depreciation from equipment, taxes, and interest. If the business deals with inventory then cost of goods sold will also be included.
- Net Income (Or Loss) – This is the bottom line. Every business wants to see a profit and the net income number will reflect that if its sales outweigh its expenses. A loss or smaller than expected profit can be explained through careful analysis of income statement.