06/25/2021
An Income Statement, also known as a Profit and Loss Statement, is another piece of data that is used to gauge a business’s financial health. The Income Statement goes hand-in-hand with the Balance Sheet and Statement of Cash Flows. Knowing what an Income Statement is and how to use it is a huge benefit to a business owner.
An income statement is used to track business operations within a certain time frame and measures the profitability of a business. The income statement displays a business’s revenue, costs, gross profit, selling and administrative expenses, other expenses and income, taxes paid, and net profit. The income statement most importantly shows if a business is operating at a profit or loss; hence the name Profit and Loss Statement. This is determined by taking all income coming into the business and subtracting out the expenses from both operating and non-operating activities. Earlier I posted about the difference between expenses and COGS- these are the expenses a business will have from operating and non-operating activities. Small businesses typically produce an income statement when a bank or investor wants to see how profitable their business is.
What is the difference between an income statement and a balance sheet? The income statement shows business profitability over a given period of time. While the balance sheet shows a snapshot of the business’s assets and liabilities. Both statements are used together to check the financial health of your business!
