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What is an Income Statement?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 November 2016
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    Conjecture Corporation
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Income statements are an example of an accounting document that is designed to provide a quick snapshot of the financial condition of a given company. Sometimes known as a profit and loss statement, the document provides data on the profits generated by the business within a given time frame, as well as making note of any expenses or losses that occur during the same period. Just about all businesses generate an income statement on an annual basis as part of the preparation for tax season. In addition, many companies also prepare the statement on a quarterly basis for purposes of internal monitoring.

The data that is used to compile the income statement is taken from the various ledgers and other documentation that relate to any revenues and expenses generated during the period under consideration. In this sense, the income statement functions to some degree in the same manner as a balance sheet, in that it accounts for the influx of money into the organization as well as making note of any outflow of resources due to various factors. The bottom line of the statement shows whether a net profit was achieved for the between the start and end dates listed for the statement.

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While there are standard accounting procedures used for defining each element included on an income statement, the documents are generally considered to be for purposes of getting a broad picture of the financial stability of the company. As such, the profit and loss statement should be seen as an overview, but not a detailed account of the transactions that took place during the period cited. More detailed information would be attained from the source documents used to determine the figures included in the profit and loss statement.

The calculations of the income statement may reflect a broad view, but the document is still often very helpful for both internal and external purposes. Investors can scan the statement and have a good idea if their investment is going well. Executives and managers can read through a profit and loss statement and sometimes identify areas where there is room for improvement in one or more functions of the company. At the least, the bottom line of the statement can help interested parties to know when the net profit seems to be shrinking or growing over previous periods.

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