Final answer:
An income statement formula is: Revenues - Expenses = Net Income. Revenues represent all incoming money, while Expenses include all costs like operating costs and payments to customers. Subtract explicit costs from revenues for accounting profit.
Step-by-step explanation:
The formula for an income statement can be summarized as follows: Revenues minus Expenses equal Net Income. In this context, revenues are the total amounts of money received or earned by the company, which can include sales, services, premiums, or any other income. Expenses are all the costs incurred by the company to earn the revenues, which typically include cost of goods sold, operating expenses, payments to customers, administrative expenses, and others. To calculate the accounting profit, explicit costs (such as wages, rent, materials, etc.) are subtracted from the revenues.
For example, if a company has revenues of $200,000 and the total explicit costs are $85,000, subtracting explicit costs from revenues ($200,000 - $85,000) would yield an accounting profit of $115,000. An accounting profit is essential for assessing a company's profitability over a given period.