Guiding Questions
In this blog, we’re going to break down what an income statement is and why it matters. Many people hear this term but aren’t sure what it actually shows. Common questions include:
- What is an income statement?
- What information does it show?
What Is an Income Statement?
An income statement is a financial report that shows how much money a business makes and spends over a specific period of time. It helps determine whether a business is profitable.
Main Components
There are several key parts of an income statement.
- Revenue: The total money earned from selling goods or services.
- Expenses: Costs required to run the business, such as rent, salaries, and utilities.
- Gross Profit: Revenue minus the cost of goods sold.
- Net Income: The final profit after all expenses are subtracted.
Why It Matters
Income statements help business owners, investors, and managers understand financial performance. If expenses are higher than revenue, the business may be operating at a loss.
Review
- What does revenue represent? Money earned
- What is net income? Final profit
- Which report shows profitability? Income statement
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