The Purpose of the Income Statement
The income statement is an activity statement that reports the financial performance of a company relating to revenue and expenses within a specific period. Revenues are the result of a business transaction resulting in positive cash flow.
The income statement outlines any changes in the financial position of the business over a specified period. Its main purpose is to show the net income or loss for that period as the result of economic activities or business transactions.
Income Statement when there is Net Income: Net income is the excess of revenue over expenses.
| Sales Revenue Less: Operating Expenses Wages Materials Other Expenses |
| $5,000
$4,500 |
| Net Income $500 | ||
Income statement when there is Net Loss: Net loss is the excess of expenses over income.
| Sales Revenue Less: Operating Expenses Wages Materials Other Expenses |
$2,000 | $5,000 $5,500 |
| Net Loss $500 | ||