The Income Statement

1. The Income Statement

2. The Purpose • An income statement reports a business’s income and expenses for a fiscal period • It is sometimes called the profit loss statements, the statement of income and expenses, or the statement of earnings

3. Income • Money that is earned by the business from a variety of sources • Sometimes called revenue

4. Expenses • The money the business has spent in order to produce income • This includes salaries, rent, daily operating costs and cost of supplies

5. Difference between Expenses and Liabilities • Expenses have already been paid, liabilities have not • Expenses are on the income statement because they must be subtracted from the income during a given period • Liabilities appear because they are a claim by creditors against the value of the business until they are paid

6. What does an Income Statement Tell you? • Net income of a business is total income minus total expenses • You can see trends in expenses – where does the money go – • Income statements can also help forecast the future of the business – what will the income be, say, a year from now • It also updates the balance sheet