An income statement (Also known as profit and loss statement -P&L-), encapsulates the costs, expenses, and revenues incurred by a business during a specified time period.
Income statements begin with an entry for a company’s revenue (the “top line”) and subtracts the associated costs of doing business, such as operating expenses, costs of goods sold, interest expenses, and tax expenses. The resulting number is known as net income, profit/earnings, or the “bottom line.” Typically, Income statements are generated once per fiscal quarter or year.
These statements provide valuable information about a business’ ability or inability to increase profit margins by reducing costs, increasing revenue, or a combination of both.
Income statements differ from balance sheets as they show a business’ financial change over time, while balance sheets are snapshots that show a company’s financial statement at the specific time the balance sheet was generated.