An income statement is a financial document that shows a company's revenues, expenses, and profits over a specific period, essential for assessing financial performance. In contrast, a budget outlines expected income and expenses, and a balance sheet displays assets and liabilities to illustrate net worth.
What is an Income Statement?
An income statement is a critical financial document for businesses, which shows a company's revenues, expenses, and profits over a particular period. It often starts with the sales figures, from which the costs of goods sold are subtracted to calculate the gross profit. Operating expenses are then deducted to determine operating profit, and after accounting for interest and taxes, the final figure on the income statement is the net profit (or net loss). The formula for profit is: Profit = Total Revenue - Total Costs. The income statement is essential for business owners and investors to assess a company's financial performance and make informed decisions.
A budget, by comparison, is a simpler document that outlines expected income and expenses, assisting individuals and organizations in planning financial decisions, such as saving for concert tickets. Conversely, a balance sheet lists a company's assets and liabilities, providing a snapshot of its financial position at a specific point in time, and showcasing the net worth as the difference between assets and liabilities.
Revenue is the total income generated by a business or government, with U.S. government revenues reaching nearly $6 trillion in fiscal year 2017. A company's income and individuals' personal income are both critical components of overall economic health, influencing real GDP, a measure of economic output, spending, and income generation within an economy.