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Income Statement

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Definition

The income statement shows the profitability of the company by compiling all revenue and expenses over a span of time.

It will output either a net income (revenue > expenses) or net loss (revenue < expenses) for the period.

Scenario

Scenario: Given the below Pre-Closing Trial Balance, create the Income Statement.

PRE-CLOSING TRIAL BALANCE

AccountDebitCredit
Cash$950
Accounts Receivable$300
Equipment$1,500
Inventory$80
Notes Payable$1,500
Interest Payable$10
Common Stock$1,250
Sales Revenue$300
Cost of Goods Sold$20
Wages Expense$200
Interest Expense$10
Totals$3,060$3,060
Income Statement

INCOME STATEMENT

AccountAmount
Sales Revenue$300
Cost of Goods Sold$20
Gross Profit$280

OPERATING EXPENSES
     Wages Expense($200)
     Interest Expense($10)
Total Operating Expenses($210)
NET INCOME$70
Notice we operated at a net income!

I've highlighted the net income in green to show you that in this Income Statement our revenues were greater than our expenses.

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