An income statement is also known as a profit and loss statement. This statement is a summary of a company’s profit or their losses during any given period of time. These time frames could range from a month, three months, or one year. An income statement records all income and revenue for the business during a particular period. It also records the operating expenses for the business.
You would also use an income statement to assist in tracking income and expenses so that you would be able to determine how efficiently your business is performing over any period of time.
Specific items that could be causing unexpected expenditures can be located and controlled,such as phone expenses, mail, or even office supplies. Income statements may also assist in tracking dramatic increases in product returns or the costs of goods that are sold as a percentage of sales. They also may be used to determine any income tax liability.
It is quite important to format any income statement so that it will be appropriate to the business that is currently being conducted.
Income Statement vs Balance Sheet
An income statement is a formula showing the cash flow of profits and expenses, also referred to as a Profit and Loss (“P&L”), whereas a balance sheet expresses asset amounts and liabilities.
Income statements as well as balance sheets, are the most basic and effective elements that would be required by potential lenders for review of your financial position. Lenders will use the financial reporting contained within your income statements and balance sheets to determine consideration for credit lines and limits.