Definition: The income statement is a financial report that shows an entity's financial results over a specific period of time. The time period covered is usually for a month, quarter, or year, though it is possible that partial periods may also be used. This is the most commonly-used of the financial statements, and is the most likely statement to be distributed within a business for management review.
The general classifications of information noted on the income statement are as follows:
- Cost of goods sold
- Gross margin (revenues - cost of goods sold)
- Selling, general and administrative expenses
- Operating income (gross margin - selling, general and administrative expenses)
- Other income and expense
- Income tax expense
- Net income or loss
The selling, general and administrative expenses may be aggregated by department, or by the nature of the expenses being reported.
The information in the income statement may be paired with budgeted revenue and expense information, along with a variance column stating the difference between actual and budgeted results. Also, if a company is publicly-held, basic and diluted earnings per share must be stated on the face of the income statement.
The income statement is part of the financial statements, of which the other components are the balance sheet and statement of cash flows.
The income statement is also known as the profit & loss statement, or P&L.