Income Statement

Understanding The Income Statement

Also called a profit and loss statement (P&L), an income statement is a picture of your business’ revenues and expenses — and the resulting net profit and loss — over a certain period of time (usually a year).

The income statement is one of the three essential financial documents — along with a balance sheet and cash flow statement — that a public company must report on an annual basis. The income statement is also the only financial statement that the IRS requires, which the taxing agency uses to assess taxes on profits earned.

What is an income statement?

There is no standard format for an income statement, but most will include rows for items like revenue, tax expenses, profit or loss, and comprehensive income. An income statement is primarily meant to inform the reader about the ins and outs of the company’s financials, so the format you choose should clearly identify your expenses. You should have a distinct row for every separate cost, so this chart could get large if you are splitting up your expenses into many categories. You can categorize expenses by type, function or by some other system.

Income statements are useful in many ways. They can help you easily visualize your company’s year-over-year (YOY) and quarter-over-quarter (QOQ) performance. Two or three years of data is often included to enable comparison. Income statements can also be used to calculate various financial ratios, such as:

  • Return on equity (ROE)
  • Return on assets (ROA)
  • Gross profit
  • Operating profit
  • Earnings before interest and taxes (EBIT)
  • Earnings before interest taxes and amortization (EBITDA)

An income statement helps you understand which way your business is headed, which is useful for informed and strategic course correction.

Income statement vs. balance sheet: what’s the difference?

The income statement is the only financial document that provides an overview of your company’s net profit and loss over a period of time. A balance sheet, meanwhile, is a snapshot of a company’s assets, liabilities, and shareholders’ equity at a particular point in time. It basically tells you what your company owns and what your company owes, including the amount of money that shareholders have invested in your company.

While an income statement allows you to understand the dynamics of the money flowing into and out of your business, a balance sheet gives you information to compute rates of return and evaluate your capital structure, which is the manner in which your company is financing its operations and growth.

An income statement is useful because it illustrates a company’s financial trajectory. A balance sheet, on the other hand, is useful because it shows how effectively a company is managing its resources.

Common terms to know

There are a variety of confusing terms you may find on an income statement. Here are some common terms to know:

  • Revenue: Also called sales on an income statement, revenue is the amount of money the company brings in during a certain period or time. This figure incorporates discounts and returns, and indicates gross income from which costs are deducted to figure net income.
  • Expense: An expense is anything a company spends money on in the course of doing business. Business expenses cover a broad range of categories and commonly include things like payments to suppliers, employee pay, subscriptions for business software, leases on facilities, and equipment depreciation. The IRS allows companies to claim some of these expenses as deductions on tax returns, but maintains strict rules as to which expenses quality for tax relief.
  • Net profit/loss: Net profit or net loss is a summation of a company’s financial situation in a given period of time. Expenses and debt are deducted from revenue for a certain period, which determines whether a company brought in more money than it spent (with debt included) or the other way around.
  • Gross profit/loss: Gross profit is the amount of money a company makes in a certain time period after subtracting the amount spent in that same period on making and selling its products (cost of goods sold, or COGS), or on providing its services. Gross loss is the amount of money a company spends to operate in a certain time period. For example, in a given month, if a company makes $10,000 in sales and spends a total of $2,500 on all of its expenses, it has a gross profit of $7,500 and a gross loss of $2,500.
  • Depreciation: Depreciation is the concept that a tangible asset like a piece of equipment loses in value over time. Properly deducting a tangible asset from taxes requires accounting methods that takes into account depreciation over the asset’s lifetime.
  • Amortization: Amortization refers to paying off debt via a fixed schedule of regular installments over a set period. For a business loan with a set interest rate, amortization joins the principal and interest into one total figure that can be payed off over a predetermined number of months or years.
  • Operating income/expenses: Operating income is the money a company earned in a given period due to regular operations, less all operating expenses for that period. Operating expenses are all of the things a company must pay to maintain operations, such as wages, rent payments, utilities, depreciation, supplies, and COGS.
  • Non-operating income/expenses: Non-operating income is business income that comes from sources other than day-to-day operations. Non-operating income sources include things like dividends, investments, foreign exchange and asset write-downs. Similarly, non-operating expenses are costs that don’t arise from a business’s core activities, such as interest, derivatives, settlements, obsolete inventory, and restructuring.

4 free income statement templates for business owners

There is no single correct format for an income statement, so each business owner can choose one that best fits their needs. However, it can be much easier to start with a template that will allow you to plug in your information and create an attractive statement with ease. Here are four free income statement templates:

  • Microsoft Office Template 1: This attractive 12-month Excel template incorporates separate tabs for revenue and expenses, as well as a line graph for easy visualization. It also gives you the option to edit in your browser window.
  • Microsoft Office Template 2: A bit simpler than Template 1, this Excel template allows you to set the time period and gives you blank boxes in which to insert your data.
  • QuickBooks Template: This Excel template is entirely customizable regarding time period and types of revenues and expenses, plus it comes with a completed example.
  • SBA Template: This simple Excel template is a one-page statement for a year-long period, with suggested expense categories included.

Photo of author

Author D Laidler

I am David, economist, originally from Britain, and studied in Germany and Canada. I am now living in the United States. I have a house in Ontario, but I actually never go.  I wrote some books about sovereign debt, and mortgage loans. I am currently retired and dedicate most of my time to fishing. There were many topics in personal finances that have currently changed and other that I have never published before. So now in Business Finance, I found the opportunity to do so. Please let me know in the comments section which are your thoughts. Thank you and have a happy reading.

Thank you for visiting

Leave a Comment

Business Finance

About Us

Business Finance News is a brand oriented to business owners and dedicated to analyzing and comparing the cost and conditions of B2B procurement of goods and services through free quotes delivered by business partners.


Address 5050 Quorum Drive, (75254) Dallas TX

telephone 844-368-6072


A personal loan is a medium term loan with a fixed interest rate that is repaid in equal monthly payments and it's usually limited to 24 months. Loan offers and eligibility depend on your individual credit profile. Our lenders can help you obtain as much as $3,000 depending on the lender, your state and your financial situation.

The owner and operator of is not a lender and is not involved into making credit decisions associated with lending or making loan offers. Instead, the website is designed only for a matching service, which enables the users contact with the lenders and third parties. The website does not charge any fees for its service, nor does it oblige any user to initiate contact with any of the lenders or third parties or accept any loan product or service offered by the lenders. All the data concerning personal loan products and the industry is presented on the website for information purposes only. does not endorse any particular lender, nor does it represent or is responsible for the actions or inactions of the lenders. does not collect, store or has access to the information regarding the fees and charges associated with the contacting lenders and/or any loan products. Online personal loans are not available in all the states. Not all the lenders in the network can provide the loans up to $3,000. cannot guarantee that the user of the website will be approved by any lender or for any loan product, will be matched with a lender, or if matched, will receive a personal loan offer on the terms requested in the online form. The lenders may need to perform credit check via one or more credit bureaus, including but not limited to major credit bureaus in order to determine credit reliability and the scopes of credit products to offer. The lenders in the network may need to perform additional verifications, including but not limited to social security number, driver license number, national ID or other identification documents. The terms and scopes of loan products vary from lender to lender and can depend on numerous factors, including but not limited to the state of residence and credit standing of the applicant, as well as the terms determined by each lender individually. 


APR (Annual Percentage Rate) is the loan rate calculated for the annual term. Since is not a lender and has no information regarding the terms and other details of personal loan products offered by lenders individually, cannot provide the exact APR charged for any loan product offered by the lenders. The APRs greatly vary from lender to lender, state to state and depend on numerous factors, including but not limited to the credit standing of an applicant. Additional charges associated with the loan offer, including but not limited to origination fees, late payment, non-payment charges and penalties, as well as non-financial actions, such as late payment reporting and debt collection actions, may be applied by the lenders. These financial and non-financial actions have nothing to do with, and has no information regaining whatsoever actions may be taken by the lenders. All the financial and non-financial charges and actions are to be disclosed in any particular loan agreement in a clear and transparent manner. The APR is calculated as the annual charge and is not a financial charge for a personal loan product. 

Late Payment Implications

It is highly recommended to contact the lender if late payment is expected or considered possible. In this case, late payment fees and charges may be implied. Federal and state regulations are determined for the cases of late payment and may vary from case to case. All the details concerning the procedures and costs associated with late payment are disclosed in loan agreement and should be reviewed prior to signing any related document. 

Non-payment Implications

Financial and non-financial penalties may be implied in cases of non-payment or missed payment. Fees and other financial charges for late payment are to be disclosed in loan agreement. Additional actions related to non-payment, such as renewals, may be implied upon given consent. The terms of renewal are to be disclosed in each loan agreement individually. Additional charges and fees associated with renewal may be applied. 

Debt collection practices and other related procedures may be performed. All the actions related to these practices are adjusted to Fair Debt Collection Practices Act regulations and other applicable federal and state laws in order to protect consumers from unfair lending and negative borrowing experience. The majority of lenders do not refer to outside collection agencies and attempt to collect the debt via in-house means. 

Non-payment and late payment may have negative impact on the borrowers’ credit standing and downgrade their credit scores, as the lenders may report delinquency to credit bureaus, including but not limited to Equifax, Transunion, and Experian. In this case the results of non-payment and late payment may be recorded and remain in credit reports for the determined amount of time.