An income Statement is a required statement that deals with the financial performance or net income of a business institution. This statement highlights the earnings, profit and loss made by the company. It’s a necessary and important process because it keeps track of how the company’s services and revenue are being spent in order to earn profit or loss for the company. This type of statement also shows the expenses and costs that have been incurred by that company. The income statements are prepared periodically as per the operations taken up by the company.
The income statement is created to highlight how the company has used its resources in order to make profit or loss to its investors. Every income statement created is different from each other since it deals specifically with a certain period and is hence, subject to change. There are essentially two methods which are followed in order to make the income statement:
- Single Step Method: Here, the income statement is made simply by deducting the expenses from the revenue made in a certain period of time to assess profit or loss.
- Multi-Step Method: This step is a little more complex as it requires different expenses that are deducted from the gross profit made.
The income statement, thus, requires a lot of care in its construction and formatting. There needs to be certain points kept in mind while making this statement:
- The company name needs to be written write at the beginning of this statement.
- The revenue section of the statement must have columns for both debit and credit and then the revenue can be specified accordingly.
- All the expenses must be jot down and added after the revenue has been mentioned.
- The net income that has been incurred will be calculated by deducting the expenses from the revenue.