income statement
A financial statement showing a company's revenues, expenses, and profits or losses over a specific period. Also called a profit and loss statement (P&L).
Example
“The quarterly income statement showed revenue of $50M, expenses of $38M, and net income of $12M.”
Memory Tip
Income statement = the STORY of revenue and expenses over a period. Did we make money?
Why It Matters
Understanding income statements helps you evaluate whether a business or your own finances are actually profitable, not just generating revenue. This information is crucial for making decisions about investing in companies, lending money, or assessing your personal financial health over time.
Common Misconception
Many people mistakenly believe that high revenue automatically means a company is profitable and successful. However, a company can have millions in sales but still lose money if expenses exceed revenues, which the income statement clearly shows.
In Practice
A small business might report revenues of 500,000 dollars in a year, but after subtracting costs like salaries of 300,000 dollars, rent of 100,000 dollars, and supplies of 80,000 dollars, the income statement would show a net loss of 20,000 dollars, revealing the business is actually unprofitable despite strong sales.
Etymology
Plain English: a STATEMENT of INCOME (and expenses). Also called the profit and loss statement.
Common Misspellings
Small business accounting made simple
Related Terms
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See Also
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