As part of OnlineAdvisor’s efforts to educate, inform and encourage business leaders, we present key financial terms and concepts. An important part of financial literacy for a business, among all of the reports, is the income statement.
The income statement is a different report than the balance sheet. A balance sheet shows information on a given specific day. The income statement is different. It shows the performance of a company over a period of time. It also shows us if we are making a gross profit and if we have net income or losses in our business. In simple terms, this report can show us if we are making money or not
The income statement, also called a profit and loss (or “P&L”) statement, includes: business income, operating costs, and expenses used to calculate total business profit or loss for a specified financial period.
Income items, such as sales, show up in this report. Expenses such as rent, payroll and office supplies are also reported in the P&L statement as well. This report allows us to see where we can control income and expense categories – and to make the most informed decisions.
P&L statements can be formatted in different ways. A monthly statement monitors the performance of your business against your projections—reflecting a profit, loss, or break-even situation. Most businesses will produce P&L statements at the end of each month. Some businesses will run a P&L during the month if they are trying to carefully monitor specific categories or line items.
At the end of a fiscal year – the 12-month period in which a business conducts its business, a P&L should be produced by the company. The reason is that it shows how the business was able to perform during that period. It shows how it was able to manage its revenues and expenses.