What Is The Purpose Of An Income Statement?

income statement

Differences between IFRS and US GAAP would affect the interpretation of the following sample income statements. Bench gives you a dedicated bookkeeper supported by a team of knowledgeable small business experts.

P&L expenses can also be formatted by the nature and the function of the expense. Amount of restructuring charges, remediation cost, and asset impairment loss.

income statement

You can compare your income statements to figure out what makes your business profitable. Prepare an income statement after releasing the product and compare it to an income statement from the previous year. Once you expense depreciation on your income statement and you remove the amount from your earnings over time, you will then need to reduce the value of this asset. Click the “Customize” button at the top right corner of your income statement to find filtering and header and footer options.

How To Read & Understand An Income Statement

Instead, they produce a similar statement that reflects funding sources compared against program expenses, administrative costs, and other operating commitments. This statement is commonly referred to as the statement of activities. Revenues and expenses are further categorized in the statement of activities by the donor restrictions on the funds received and expended.

Finished products are inventory fully assembled and available for sale. Compare to other software See how we compare with other financial solutions. Guidelines for balance sheets of public business entities are given by the International Accounting Standards Board and numerous country-specific organizations/companies. The difference between the assets and the liabilities is known as ” equity “. Selling, General and Administrative expenses (SG&A or SGA) – consist of the combined payroll costs. SGA is usually understood as a major portion of non-production related costs, in contrast to production costs such as direct labour.

An income statement gives you a good look at the financial health of your business. The “Print” button at the top of the profit and loss statement in QuickBooks Desktop is used to print the report or to export it as a PDF. There’s a separate “Excel” button for exporting your income statement to Excel, if you want to save your income statement in that format.

Income Statement Example

Click the “Customize Report” button at the top left corner of your income statement to find these same options. The very first field at the top left corner of your income statement is a dropdown box, which lets you choose from a number of predetermined date ranges.

income statement

Calculate Gross Profit by subtracting the cost figure from the revenue figure. There are many different expenses your business can incur, like employee salaries, office supplies, rent, interest, and professional fees.

Company B Income Statement

Understand how your business is performing with an income statement. The income statement, also known as the profit and loss statement, gives you a better understanding of your total revenue, net income, and net profit over a specific time period. We’ve also included a sample income statement to make it easy for business owners to see what a completed income statement might look like. The Multi-Step income statement takes several steps to find the bottom line, starting with the gross profit.

Expenses recognized in the income statement should be analyzed either by nature (raw materials, transport costs, staffing costs, depreciation, employee benefit, etc.) or by function (cost of sales, selling, administrative, etc.). Joe asks Marilyn to provide another example of a cost that wouldn’t be paid in December, but would have to be shown/matched as an expense on December’s income statement. She asks Joe to assume that on December 1 Direct Delivery borrows $20,000 from Joe’s aunt and the company agrees to pay his aunt 6% per year in interest, or $1,200 per year.

  • Non-operating revenue — Money made from activities outside of a company’s primary business activities, such as from interest-earning accounts or rental income from unused property the company owns.
  • It represents the inflow and outflow of resources the entity accumulates in a given period, most typically, a fiscal year.
  • One is to develop ratios that can pinpoint areas of improvement for a business, such as the gross margin ratio and the net profit ratio .
  • If you’re creating your QuickBooks income statement for tax- or loan-application purposes, ask your tax advisor or business loan officer which basis they need.

Additional details and examples of income statements will be provided later. FreshBooks provides free template income statements that are pre-formatted for your needs.

You can use the income statement to summarize monthly, quarterly, or annual operations. It is important to remember that your income statement presents sales and expense activities over a period of time as opposed to your balance sheet, which shows your financial condition at a point in time. Most of these figures depend on each other, and can be used to assess many features of a company. From revenue, for instance, you can subtract the cost of goods sold to find the gross profit. From gross profit, you can subtract expenses, to arrive at earnings before tax . While the income statement tells us about earnings and how much money a company has made or lost during a specified time period, the balance sheet tells us what the company is actually worth at one specific point in time. Generally accepted accounting principles provide a consistent basis for understanding how companies account for their assets, income, etc.

The Operating Expenses section provides a categorical listing of total expenses followed by the Operating Income. These expenses should only include items related to directly administering your business. The header of the ledger account usually includes three separate lines. As a business owner, creating an income statement will measure your business’s profitability and help with decision-making. Your company’s income tax liability will depend on things like sales. You can export it as a PDF or Excel worksheet, attach it to an email and send it to your accountant, loan officer or financial advisor. You can also click on the Refresh button at the top right corner of your profit and loss statement to make sure the customizations have taken effect.

How Is An Income Statement Used?

It also helps you analyze whether performance metrics are improving. In addition to helping you determine your company’s current financial health, this understanding can help you predict future opportunities, decide on business strategy, and create meaningful goals for your team. Learn accounting fundamentals and how to read financial statements with CFI’s free online accounting classes.


Investors analyze income statements to calculate financial ratios and compare the same company year over year, or to compare one company to another. In most instances, what is important is not the ratio itself, but what happens to it over time and/or how it compares with competitors’ ratios. The most important ratios use numbers from both the balance sheet and the income statement. Produce a trial balance report – Next, you should prepare a trial balance report . Generally, you should be able to generate these reports using your accounting software. The income statement calculates thenet incomeof a company by subtracting totalexpensesfrom totalincome.


You can find these same options for saving your customized QuickBooks by clicking the “Memorize” button at the top of your profit and loss report. Adding notes to your income statement can help explain anomalies in your QuickBooks financial statements or ask questions about certain line items. The default for income statements in all versions of QuickBooks is to show only the ”Total” column for the date range you choose for your report.

Whats The Purpose Of An Income Statement?

Our expert bookkeepers here at Bench have built an Income Statement template in Excel that you can use to turn your business’ financial information into an Income Statement. If your business owes someone money, it probably has to make monthly interest payments. Your interest expenses are the total interest payments your business made to its creditors for the period covered by the income statement.

Within an income statement, you’ll find all revenue and expense accounts for a set period. Accountants create income statements using trial balances from any two points in time. The statement displays the company’s revenue, costs, gross profit, selling and administrative expenses, other expenses and income, taxes paid, and net profit in a coherent and logical manner.

A non-operating expense is an expense incurred by a business that is unrelated to its core operations. This figure represents the Earnings Before Interest and Taxes for its core business activities and is again used later to derive the net income. Let’s look at the most recent annual income statements of two large, publicly-listed, multinational companies from different sectors of Technology and Retail . All expenses that go towards a loss-making sale of long-term assets, one-time or any other unusual costs, or expenses towards lawsuits. Losses — One-time expenses, such as lawsuits or losses on the sale of investments. Gains — Money gained from non-recurring events, such as payments from a lawsuit or the sale of long-term investments or assets.

Cost of goods sold expenses are reported in the gross profit reporting section while the operating expenses are reported in the operations section. Other expenses are reported further down the statement in the other gains and losses section. The first step in preparing an income statement example is to choose the reporting period your report will cover. Businesses typically choose to report their income statement on an annual, quarterly or monthly basis. Publicly traded companies are required to prepare financial statements on a quarterly and annual basis, but small businesses aren’t as heavily regulated in their reporting. Creating monthly income statements can help you identify trends in your profits and expenditures over time. That information can help you make business decisions to make your company more efficient and profitable.

And although creating and printing the statement isn’t difficult, there are a number of different ways you can customize, save and send this report. With a little bit of setup work, you can create the perfect income statement for your business accounting needs. You will not see a line item for depreciation on a cash flow statement; it is not a cash transaction.

So, there’s no true way to tell how much cash may be on hand at any given moment or how much is due to come in. When you compare each line up and down the statement to the top line , this is called «vertical analysis.» Each line item becomes a percentage of a base figure.

The three main financial statements all provide a summary of the business’s financial health. But, the purpose of an income statement is to show the business’s sales and net income. Use the income statement to assess your business’s profitability during a specific time period. The next number your income statement produces is the gross margin, sometimes called gross profit.

Otherwise, you can define an income statement period that suits your needs. Knowing whether you have a net income or loss will determine changes you need to make to your business’s budget. When you have a net loss, work on cutting back expenses and increasing sales. You need to account for the cost of producing your goods or performing your services. Cost of goods sold includes raw materials and direct labor expenses. You can save your customizations by clicking on the “Save customization” button at the top right corner of your income statement. You can also choose to include your customized report in a group of reports and specify who should be able to access the customized report.

Author: Jody Linick


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