The income statement is one of the financial statements that businesses have to include in their annual report. It shows profit and loss for the past fiscal year.
The income statement is one of the core financial statements that shows the financial health of a company.
The main point of the income statement is to show whether your company operated with a profit or loss in the past fiscal year.
An income statement is also called a profit and loss statement.
Do I need an income statement?
Businesses have to create the income statement as part of their annual report.
If you don’t have your own business—but work as a freelancer, contractor or sole trader—you’re not required to create an income statement or to submit an annual report, but it’s still a useful report for getting an overview of how your business is performing.
It will show whether your company is profitable or not, and help you with budgeting and planning
Get started with a free profit and loss statement template.
How does it work?
Businesses usually create their income statement in an accounting software, or they outsource it to an accountant. You can also create it in Excel.
To create the income statement, you start by adding your revenue from sales and from interest. Then you add the variable costs you’ve had in order to produce the goods or deliver the services, such as materials and labour.
Then you add operating expenses, such as wage costs, rent, insurance, office supplies and so on. You’ll then be able to see your earnings before interest and taxes. You then work out how much you’ll pay in interest and earn in interest, and how much you’ll pay in taxes.
Finally you arrive at your net profit, which is how much money you’re left with after tax is deducted,
Read more about net and gross.