Now that you are armed with the basic knowledge of what an Income Statement is , it’s important to understand what the Income Statement actually tells you.
- The Income Statement reports the main and any secondary sources of income. For example, Services would be the primary revenue in a Bookkeeping Service. If you had a bank account that earned interest, a secondary source of revenue would be Interest Earned.
- The terms used to describe the revenue will provide a clue about the nature of the organization. For example, Services implies a service company; while Sales Revenue implies a retail or wholesale firm.
- The items listed as expenses are expired, meaning they have no useful value left.
- The result of matching the revenues and expenses yields the Net Income. The term ‘net’ implies that the revenues and expenses have been matched, and therefore there is not an over or under statement of the income (loss).
What an Income Statement does not tell you
Accounting reports take the data stored in your books and present it in an easy-to-understand format. There are different types of reports that each serve an unique purpose. Here is the Balance Sheet.
What is a Balance Sheet?
A balance sheet provides insight into a business’s financial situation at a given time and is used to ensure the books are accurate. It consists of three sections: assets, liabilities, and the owners/shareholders equity.
Keeping detailed accounting records for your business is important for many different reasons. For one, your books hold a wealth of information about the financial state of your business. You can learn a lot about your operations and make smart decisions by looking at the right data.
Accounting reports provide an overview of important financial information in an easy to understand format. There are different types of accounting records that each tell different stories about your business.
Here is why an Income Statement (or Profit and Loss Statement, as it’s also known) is important and what information it includes.
When you start to keep financial records for your business, you’ll need to decide what method of accounting to use. There are two choices – the cash method (also known as cash basis accounting) and the accrual method (accrual basis accounting).
Here are the differences between these two accounting methods and what to consider when deciding which method is best for your business.