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A year-end income statement presents a summary of a company's revenue and expenses for the 12 months prior to the end of a fiscal year. For many businesses, their fiscal year mirrors a calendar year and ends on December 31, but just as many businesses use a custom fiscal year that ends in some month other than December. This income statement is ordinarily part of the company's consolidated financial statements that is prepared once a year by an independent auditor and can be included in a company's annual report to investors.
Businesses use financial statements to evaluate the condition of the company from various perspectives. The four standard statements that are in regular use in the business world are the balance sheet, statement of cash flows, income statement and statement of owners' equity. An income statement is used to determine whether the business is operating at a profit or at a loss. It compares revenues to expenses over a period of time, which is typically a year but can be as short as one month.
Financial statements can be compiled from a company's accounting system at any point, but there are certain times of the year when statements are generated for specific purposes. Most businesses must generate financial statements at year-end, in particular, to enable the company's accountants to prepare tax reports, to close out payroll for the year and to comply with reporting requirements to government agencies and investors. A year-end income statement can refer to either the end of the calendar year or the end of the company's fiscal, or operating, year. The statement will indicate the year-ending date at the top of the report. If the year-ending date is anything other than December 31, the company uses a fiscal year.
Companies use a year-end income statement to present 12 months of revenue and expenses, detail the taxes that have been paid and arrive at a net income or loss figure. This tells management and investors whether the company has been operating at a profit, and whether management has a tight enough reign on expenses as compared to revenue. It also allows analysts to generate financial ratios based on the information that can reveal whether continued or future investment in the company is advisable.
Most importantly, the year-end income statement is generated to zero out the revenue and expense accounts in a company's accounting system. Tax laws set the business cycle at 12 months. At the end of every cycle, the business must total up revenue and expenses and pay income taxes based on the results. The next cycle starts both account types at zero, so there is no confusion about what income has already been taxed.
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