An income statement shows a business's profits and losses
An income statement (profit statement) statement shows the profit or loss made by a company over a set period of time.
Income statements show both the gross profit and the net profit made by a company.
There are many reasons why a company would produce an income statement:
- to calculate the total costs of expenses
- to calculate the profit/loss made for the year
- legal reasons (all limited companies are required to produce an income statement)
- tax reasons (profit needs to be calculated so businesses can accurately calculate their tax payments)
- to calculate cost of sales
- to compare with previous years or other companies