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Income Statement Definitions

Apr 22, 2008
An income statement which some call a profit and loss statement measures profitability and recognizes revenues when they are realized or when the service is rendered. The income statement provides a summary of a business's revenue (sales) and expense for the time period stated.

The Basic information on an Income Statement is the businesses' revenue, expense, and profit / loss.

In short, revenue is the total income that a business receives. When summarized on an income statement the revenue is typically broken down into sub-categories or displayed on multiple lines in order to easily convey whether the income was derived from normal business operations or not.

Expense can be defined on an income statement simply as the businesses' trade of value or money from the business to a different entity. Just as revenue, expenses are similarly categorized on an Income Statement. For example, Cost of Goods Sold should only reflect the direct cost or expense of producing the businesses' product or service, while your administrative costs would be on a different line.

1. Microsoft Excel can be setup to provide the data for these statements.

2. Calc is a free Excel-like product from OpenOffice that can be configured to provide the data to prepare these statements.

3. Quickbooks is a popular Small Business accounting program that can be used to provide these statements.

By using the data provided by the Income Statement you can determine whether the company is profitable (more value coming into your business than going out) but you will need to utilize the cash flow statement and balance sheet to give a full picture of the company's health.
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