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Income Statement

A financial document that reports a company’s revenues, expenses, and profits over a specific period.

Business Glossary provided by


Income Statement, also known as a profit and loss statement, is a financial report that summarizes the revenues, costs, and expenses incurred during a specific period, typically a fiscal quarter or year. This statement provides insight into a company's ability to generate profit by increasing revenue, reducing costs, or both.

Context of Use:

The income statement is fundamental in financial accounting and is used by stakeholders such as investors, creditors, and management to assess a company’s financial performance and profitability over time. It is one of the core financial statements alongside the balance sheet and cash flow statement.


The primary purpose of the income statement is to convey the profitability and operational efficiency of a company. It helps stakeholders understand how revenue is transformed into net income, providing a basis for financial analysis and decision-making.


  • Retail Company: An income statement for a retail company would highlight total sales, cost of goods sold, gross margin, and various operational expenses.

  • Manufacturing Firm: For a manufacturing firm, the income statement would detail production costs, operational expenses, and the cost efficiencies of production processes.

Related Terms:

  • Revenue: The total income generated from normal business operations.

  • Expenses: The costs incurred in the effort to generate revenue.

  • Gross Profit: The profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.


1. What are the main components of an income statement?

A: The main components include revenue, cost of goods sold (COGS), gross profit, operating expenses, and net income.

2. How often are income statements prepared?

A: Typically, income statements are prepared quarterly and annually.

3. What is the difference between an income statement and a balance sheet?

A: The income statement shows financial performance over a period of time, whereas the balance sheet provides a snapshot of a company's assets, liabilities, and equity at a specific point in time.

4. Can income statements reveal trends in business performance?

A: Yes, analyzing multiple periods of income statements can help identify trends in revenue growth, expense management, and overall profitability.

5. What role does depreciation play on an income statement?

A: Depreciation spreads the cost of an asset over its useful life and is recorded as an expense on the income statement, impacting the net income.

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