An income statement or a profit and loss statement, explains revenue and expenses of the organization for over a period of one year. This income statement is one of the five basic accounting tools that make up the financial statements.
This is an important tool used in an organization by the accounts department, especially by an accountant and an auditor. The income statement encompasses figures of the company’s revenue, operating expenses, taxes and net amount. The statement usually relates to the period of whole one fiscal year, however, it can be made half-yearly or even monthly, depending upon the requirement of the organization.
Income statement helps the user to take important financial decisions that will prove to be helpful for the organization in the end. So, it would not be wrong to say that it can act as an evaluation tool for the business as this will help the company to get gross business sales, costs related to business and finally the net income, all in one statement. This tool proves to be the basis of many vital decisions made by the management, thus it should be made with excellence and greater care.
As the name suggests, this is a document that is made in a statement format. It starts with the name of the company, name of the statement and the period to which it belongs. After that the statement starts, it starts with the revenue or sales of the organization for that period. The cost of sales is calculated by an accountant using a standard formula and is deducted from the sales. A cost of sales can be calculated by adding purchases to the opening inventory and deducting closing inventory from it. From this gross profit, all the related operating expenses are deducted and any income is added. This will give the net income. From this net income taxes are adjusted and thus it gives the amount of profit or loss. This statement should have a column in front of these elements mentioning the figures. This column can be divided into two, for credit figure and debt each.
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Income Statement Template
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