An income statement, also called a profit and loss (P&L) statement, summarizes a company’s revenues, costs, gross profit, expenses, taxes, and net profit over a specific timeframe, usually quarterly or annually. It provides a clear view of whether the business earned a profit or incurred a loss during that period.
Purpose of an Income Statement Essentially, an income statement gives insight into a company’s financial performance, allowing employers to:
- Evaluate profitability and determine if adjustments are needed to improve margins.
- Identify key factors impacting profit, such as increased revenue or reduced expenses.
- Forecast future performance by analyzing past trends and setting achievable targets.
Three Key Components
- Revenue: Total earnings from primary and secondary sources.
- Expenses: Costs incurred to generate revenue, including COGS, SG&A, depreciation, and amortization.
- Net Income: Final profit or loss after accounting for all income and expenses.
Difference Between Income Statement and Balance Sheet While an income statement shows performance over time, a balance sheet displays a company’s assets, liabilities, and equity at a specific moment. Together, they provide a comprehensive picture of financial health.