Income Statements

The Income Statement, also known as the Profit and Loss Statement, tells you whether or not a company made money over a certain period of time. In its simplest form, it lists revenues and expenses and at the end it shows the net income (or net loss if the company doesn’t make money). Within each category it breaks down the revenues and expenses into sub-categories. For example, expenses can be broken down into salaries, advertising, rent, etc.

Income statements come in all shapes and sizes. They can be compact or they can be detailed to show more information. Different industries have different types of income statements to focus on different aspects of their business. For example, a retail company that has a large amount of inventory on hand will show a detailed accounting of their inventory and the cost of goods sold. But a service company, which typically doesn’t sell products, won’t have any inventory listed.

Income statements used for internal purposes will often be very different than external reports. I recently built an income statement for a financial manager at a large university. She wanted every account category summarized except for expenses. She wanted the expenses grouped by department and listed in extreme detail so that she could analyze how each department manager was allocating their funds. This would not be the type of income statement I would write if it was to be viewed by people outside of her department.

When you design the income statement, you have to research the best format so that it meets the needs of your intended audience. A sample income statement is shown in Figure A-9.

Figure A-9. Income Statement Template.