An income statement or profit and loss account is one of the financial statements of a company and shows the company’s revenues and expenses during a particular period. It indicates how the revenues are transformed into the net income. The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported.
Profit and Loss Statement
A financial statement that sums up the expenses, costs and revenues that are incurred by an organization over a specific period of time is called the profit and loss statement. The ability of the company, to reduce costs or increase revenue through profits, or do both is provided by the profit and loss statement. It is also referred to as the income statement, the statement of profit and loss, the statement of financial results, the statement of operations, as well as, the income and expense statement.
More about Profit and Loss Statement
Profit and loss statement is one of the three financial statements that are issued by each public company over the period of a quarter, every year. The other two are the cash flow statement and the balance sheet. The income statement, which is another name for the profit and loss statement, is made to show the changes in accounts that take place over a specific period of time. On the other hand, a balance sheet will only tell you what are the assets and liabilities of the organization in a defined period. Comparing the cash flow statement and the income statement is necessary because under the accrual method of accounting, expenses and revenues need to be logged in the statements before cash changes hand actually.
There is a general form of income statement that is usually followed by all organizations. Beginning with the entry for revenue and subtracting from it the cost of doing the business (including the operating expenses, the cost of goods sold, interest expense and the tax expense). The bottom line, which gives the difference between the aforementioned values, is the net income of the organization which is also referred to as the earning or profits.
Comparing income statements from different accounting periods is important since it provides the account of any changes that have been taking place in the organization in terms of the operating cost, changes in the revenue, net earnings, and the cost of research and development.
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