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Learn about the purpose of an income statement, how it reports income and expenses, the difference between expenses and liabilities, and how it can help forecast your business's future. Keep track of where your money goes and update your balance sheet.
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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
Income • Money that is earned by the business from a variety of sources • Sometimes called revenue
Expenses • The money the business has spent in order to produce income • This includes salaries, rent, daily operating costs and cost of supplies
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
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
