Income Statement

Topics: Revenue, Generally Accepted Accounting Principles, Depreciation, Income statement, Balance sheet / Pages: 13 (3597 words) / Published: Oct 30th, 2014
Income statement

The income statement or the profit and loss account as it is also called measures reports how much profit (wealth) has the business generated over a period of time.

To measure profit the total generated revenue over a period must be identified. Revenue is a measure of inflow of economic benefits arising from the operations of the business. These benefits will either result in an increase of assets such as cash or amounts owed to the business by the customers or a decrease of liabilities.

The total expenses must also be identified. Expenses are obviously the opposite of revenue. It represents the outflow of economic benefits.

The profit is then easily calculated by taking the generated revenue over a particular period of time and from it deduct the total expenses incurred in generating that revenue. The final result form the mathematical equation will be either a profit or a loss. If the revenue is more than the expenses = profit and if the expenses are more than the profit = loss.

The period over which profit or loss is calculated is called reporting period but it is sometimes referred to as accounting period or financial period.

Different roles
The income statement and the statement of financial position have different roles. The statement of financial position gives us information about the financial status(position) of the business at a particular time and the income statement gives us information about the amount of profit (wealth) generated by the business. The two statements are closely related.

The income statement links the statement of financial position at the beginning and the end of the reporting period. At the beginning of the reporting period the statement of financial position shows the opening wealth position of the business at that time. After an appropriate period an income statement is then prepared to reveal the wealth generated at that period. A statement of financial position is then prepared to reveal

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