What is an Income Statement?
An income statement shows the financial status of your business over a period of time. It includes your revenues and gains, expenses and losses. It is also one of the three key financial statements that also include the cash flow statement, and the balance sheet.
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Income Statement – Example
Here is an example of an income statement for the ACME Bakery.
In this example, you can see that the ACME Bakery business made a total of $5,250 in revenue, a gain of $3,725 from the sale of your old oven, and had total expenses of $750.
Here’s how the Net Income was calculated.
NET INCOME = (Revenue + Gains) – (Expense + Losses)
NET INCOME FOR ACME BAKERY = ($5,250 + $3,725) – ($750 + 0) = $8,225
Revenue can either be operating or non-operating revenue. Operating revenue refers to the revenue you get from the sale of your products. For example, the fees that the ACME Bakery receives from selling cakes.
Non-operating revenue comes from secondary sources. For example, the interest earned on business capital in the bank.
Any amount realized from non-primary revenue generating activities. For example, if the ACME Bakery sold their old oven, then the amount they would realize from its sale is known as gain.
Expenses are the fees it takes to run your business and make a profit. Your rent is an example of an expense.
Any amount lost from non-primary activities. For example, if the ACME Bakery had a fire and the oven was damaged beyond repair, then the negative value of the oven would be recorded as a loss.
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