There are three main financial statements, the balance sheet, the statement of cash flows and the income statement.
The income statement is also known as the profit and loss statement. This statement will show a company’s financial performance over a certain time period.
For example, the revenue earned during a calendar year. For tax reporting purposes, our clients who file a Schedule C, Schedule F, or Schedule E will be requested to provide us with their income statement for the year in order to report their income and expenses on their tax return. When we complete the bookkeeping for a business for a client, we provide this schedule to them on an agreed-upon basis and annually for preparation of the income tax return.
What is on an income statement?
On an income statement, you’ll find 4 key items:
1) Revenue
2) Expenses
3) Gains
4) Losses
The income statement formula:
The basic formula to create an income statement is: Net Income = (Total Revenue + Gains) – (Total Expenses + Losses).
Through an income statement, you can evaluate a company's performance in terms of profitability and business activities. As we have mentioned before, the three primary financial statements should be used together to be able to get a clear picture of how a company is doing financially.
This post may not contain a complete analysis of the tax issues discussed herein and does not represent official conclusions or advice regarding the matter.