Income Statement
BeginnerAlso known as: Profit and Loss Statement (P&L), Profit and Loss Statement, P&L An income statement is a financial statement that shows a business's revenue, expenses and resulting profit or loss over a period, such as a quarter or a year. Unlike the balance sheet, which is a snapshot at one date, the income statement covers a period of time. It shows how well the business performed during that period. It usually starts with revenue, the money earned from sales. Cost of goods sold is subtracted to give gross profit. Operating expenses, such as wages, rent and marketing, are then subtracted to give operating income. Finally, interest and taxes are deducted to arrive at net income, the bottom line. For example, a company with revenue of 1,000,000, cost of goods sold of 600,000, operating expenses of 250,000, interest of 20,000 and tax of 30,000 reports net income of 100,000. The income statement is prepared on an accrual basis, so profit is not the same as cash. A company can show a profit while running low on cash if customers have not paid yet. Investors read the income statement alongside the cash flow statement to get the full picture. Note: The income statement is also called the profit and loss statement, or P&L. The names are interchangeable.
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