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Income statement - What is an income statement?

Definition: An income statement shows a company’s revenues less their costs and expenses over a given period (e.g. a financial year or one month). The conclusion of an income statement shows the company’s net income (or net loss).

An income statement is an integral component of a company’s financial statements. It shows how a company’s revenue is converted into net income: first by displaying the revenues recognized for a specific period, and then by subtracting the costs and expenses from these revenues (including write-offs and taxes).

The income statement is used in order to show internal and external company stakeholders whether the company made or lost money during the reporting period.

Income statement format

A typical income statement shows a company's revenues, followed by their cost of goods sold, their expenses, and any other sources of income (other than daily sales, e.g. the revenue from a one time sale of a factory). It concludes with the company's net income for the period.

Positive values (revenues) are expressed as whole numbers with no additional text, while negative values (losses) are indicated by being wrapped in parentheses, e.g. (1,000).

It is important to note that an income statement expresses the financials over a period of time (as opposed to the balance sheet, which shows just a single moment in time). This is why every income statement will say something along the lines of "For the period of: dd/mm/yyyy" across the top.

Success Indicator

The goal of the income statement is to describe how successful the operations of the business are. The main objective is to make a profit, and the statement displays the extent to which this objective has been successful.