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Home Business Finance What Is an Income Statement?
As you grow your business, you will need to develop financial documents to report to your investors and secure additional funding from the bank. One of these documents is an income statement. Keep reading to learn more about this financial document and what to include in it.
The income statement reports on how profitable your business is during a set period of time. It is sometimes referred to as a profit and loss statement (P&L), a net income statement, or a statement of earnings. Business owners can see exactly how much they made during that period by reviewing the income statement.
There are 2 key categories on your income statement: revenue and expenses (or losses). The income statement will show your total profit—income—as a result of subtracting your expenses from your revenue.
The income statement might also have a breakdown of what makes up your revenue or expenses, like rent, marketing costs, and sales from different services.
An income statement alerts a company to whether or not it is profitable. While sales numbers may be impressive and customers may be happy, the statement of earnings will review how much the business made once the expenses are subtracted. A business owner can make adjustments to become more profitable based on this report.
Investors and lenders also want to look at your income statements to understand if your business is profitable and whether they should continue to support it.
Depending on your business, you will look at your income statement annually, quarterly, or monthly. For example, you may pull your income statement monthly to ensure your business is profitable and to prove that your company is growing over time. You can also use an annual income statement when you file reports with your investors or governing bodies in your area.
Preparing an income statement is easy if you already have an organized ledger. Use a free tool like Lendio’s software to automatically export expenses and income so you can easily report on the financial state of your business.
Derek Miller is the CMO of Smack Apparel, the content guru at Great.com, the co-founder of Lofty Llama, and a marketing consultant for small businesses. He specializes in entrepreneurship, small business, and digital marketing, and his work has been featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp.