Income Statement

Income Statement (also known as Profit and loss statements) are used as a tool to review your income less expense (to earn that income) for the current year. 

Income 

Income (revenue) are the earnings of a business from goods & services. This is normally a credit balance e.g. items sold. 

Expenses 

Expenses are goods and services which are used in the business to produce the income eg office supplies and utilities. This is normally recorded as a debit balance in the accounts. 

Cost Of Goods Sold

Cost of goods sold - are the goods purchased for uses or resale in the business. such as items may be used for example in the building of a machine. 

Operating profit

Operating Profit - is the profit earned from the items less the direct expense relating to building the item.

Income Statements (Profit and Loss statements) are used to review how the business is performance is going over a set period of time (normally at the end of financial year) and to see what expenses have been incurred during that period. These are also undertaken in order to determine which expenses are high in comparison to income. By doing this review, a business can look at alternative way to decrease its expenses and increase its income so that would be more profitable & more efficient. Once the Income statement is done the profit or loss of the statement goes in the Balance Sheet under the equity

 

As example of a typical Income Statement (profit and loss) is as follows: 

Income statements for the period ending 30 June 20XX                      $       

 

Revenue /Income           

                              Sales                                                                  XXX 

Cost of Goods Sold 

                              Purchases                                                           XXX 

Operating Profit                                                                             XXX 

                                                                                                        ____ 

Less Expense 

                             Advertising                                                          XXX 

                             Postage                                                               XXX 

                             Office Supplies                                                    XXX 

                             Utilities                                                                XXX 

                                                                                                        ____ 

Net Profit/Loss                                                                               XXX 

 Income Statement                                                                            ____