The Income Statement is a formal financial statement that summarizes a company's operations (revenues and expenses) for a specific period of time usually a month or a year.
A fiscal year is the period used for calculating annual (yearly) income statements.
While a large number of businesses use the calendar year (January-December) as their fiscal year, a business can elect to use any other twelve month period such as June-May their fiscal year.
The categories and format(s) of the Income Statement follow the rules known as Generally Accepted Accounting Principles (GAAP) and contain specific revenue and expense categories.
The following types of accounts are used to prepare the Income Statement.
Revenue (Also Called Income)
Formal Definition:The gross increase in owner’s equity resulting from the operations and other activities of the business.
Informal Definition:Amounts a business earns by selling services and products. Amounts billed to customers for services and/or products.
Expense (Also Called Cost)
Formal Definition:Decrease in owner’s equity resulting from the cost of goods, fixed assets, and services and supplies consumed in the operations of a business.
Informal Definition:The costs of doing business. The stuff we used and had to pay for or charge to run our business.
Some examples of business expenses are office supplies, salaries & wages, advertising, building rental, and utilities.
Hopefully a business earns a profit called net income (revenues are larger than expenses). If however, expenses are larger than revenues a net loss results.
The major sections of an income statement are the heading, the revenue section, the expense section, and the final calculation of a profit or loss. The heading should contain the name of the company, the title of the statement, and the period covered by the statement.
Sample Income Statement
Shabby Computer Systems
For Year Ended December 31, xxxx
Cost Of Goods Sold
Vehicle Operation Expense
Maintenance & Repairs
Bad Debt Expense
What's Next ?
Capital (Owner's Equity) Statement