What is an Income Statement?

An income statement is basically a document that will provide a long-term financial snapshot of a business. Keep in mind that an income statement is not biased towards earnings. It will show financial status, even if a particular company has lost money. The reason they are so useful is because they can provide business owners with a new insight on their company. Ultimately, they’ll be able to make any necessary changes in order to maximize their earnings.

What Data is on an Income Statement?
Some people tend to become confused when they are confronted by the various pieces of data on an income statement. But the truth is that all of this information is relatively simple to understand. Basically, you have three areas which include your spending, earnings, and total earnings. Your spending’s are commonly referred to as “Expenses”. Now, expenses can include any of the following:

  • Salaries
  • Advertising
  • Gasoline
  • Insurance
  • Tools and Supplies
  • Employee Meals

Basically, any money that is spent on a business is considered an expense. The other major part of an income statement is the earnings section. This is commonly referred to as “Revenues” and will basically show you how much money a company has earned.

What are the Differences between Total Revenues and Net Income?
This is one area where some people tend to become confused. Fortunately, it is quite easy to understand. To put simply, “Total Revenues” is all of the money that was earned from a company. This includes any money earned off of physical products sold as well as fees earned off of services. Total revenues is usually located first on an income statement and contains very crucial information.

The “Net Income” section of an income statement will tell a business owner the “Total” amount of money that a company has earned. For example, if a company earned $100,000 in a year but spent $30,000 on expenses then their Net Income would only be $70,000. This is the number that investors, financers, and business owners are really looking at.

Conclusion
The income statement is very crucial in determine the financial health of a company. Remember to include all expenses on an income statement. Essentially, any money that you spend on a business constitutes as an expense. Hiring an accountant for your business is ultimately one of the best ways to keep track of this information throughout the year.

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