Income statement

Definition

An income statement is a financial document that reports a company's revenues, expenses, and profits over a specific period of time. It provides insights into the company’s operational performance and profitability.

5 Must Know Facts For Your Next Test

1. The income statement includes three main sections: revenues, expenses, and net income or loss.
2. It helps stakeholders assess the company's ability to generate profit by comparing revenue against expenditures.
3. Income statements can be prepared for different periods such as monthly, quarterly, or annually.
4. It follows the accrual basis of accounting where revenues and expenses are recorded when they are earned or incurred, not necessarily when cash is received or paid.
5. The bottom line of an income statement shows the net income, which is calculated as total revenue minus total expenses.

Review Questions

• What are the three main sections of an income statement?
• How does an income statement help stakeholders assess a company's performance?
• What accounting basis is used to prepare an income statement?

Related terms

Statement of Owner's Equity:

A financial statement that shows changes in the owner's equity over a reporting period.

Balance Sheet:

A financial statement that presents a snapshot of a company's assets, liabilities, and equity at a specific point in time.

Statement of Cash Flows:

A financial document that provides aggregate data regarding all cash inflows and outflows a company receives.