The Income The Income StatementStatement

The PurposeThe Purpose

An income statement reports a An income statement reports a business’s income and expenses for business’s income and expenses for a fiscal perioda fiscal period

It is sometimes called the profit loss It is sometimes called the profit loss statements, the statement of income statements, the statement of income and expenses, or the statement of and expenses, or the statement of earningsearnings

IncomeIncome

Money that is earned by the business Money that is earned by the business from a variety of sourcesfrom a variety of sources

Sometimes called revenueSometimes called revenue

ExpensesExpenses

The money the business has spent in The money the business has spent in order to produce incomeorder to produce income

This includes salaries, rent, daily This includes salaries, rent, daily operating costs and cost of supplies operating costs and cost of supplies

Difference between Expenses Difference between Expenses and Liabilitiesand Liabilities

Expenses have already been paid, Expenses have already been paid, liabilities have notliabilities have not

Expenses are on the income Expenses are on the income statement because they must be statement because they must be subtracted from the income during a subtracted from the income during a given periodgiven period

Liabilities appear because they are a Liabilities appear because they are a claim by creditors against the value of claim by creditors against the value of the business until they are paidthe business until they are paid

What does an Income What does an Income Statement Tell you?Statement Tell you?

Net income of a business is total Net income of a business is total income minus total expensesincome minus total expenses

You can see trends in expenses – You can see trends in expenses – where does the money go – where does the money go –

Income statements can also help Income statements can also help forecast the future of the business – forecast the future of the business – what will the income be, say, a year what will the income be, say, a year from nowfrom now

It also updates the balance sheetIt also updates the balance sheet