What is an income statement? (1 point)
Responses
a statement of sales over time compared to COGS at any point of time
a statement of sales over time compared to COGS at any point of time
a list of all sources of income
a list of all sources of income
a statement that compares revenues to expenses and presents the net income (or loss) from a period of time
a statement that compares revenues to expenses and presents the net income (or loss) from a period of time
a statement that compares assets to liabilities
and presents the owner's equity at a specific point in time
(1 point) The correct response is:
a statement that compares revenues to expenses and presents the net income (or loss) from a period of time
The correct response is:
a statement that compares revenues to expenses and presents the net income (or loss) from a period of time.
To understand what an income statement is, let's break it down:
An income statement is a financial statement that provides information about a company's financial performance over a specific period of time, usually a year, quarter, or month. It is also known as a profit and loss statement, statement of earnings, or statement of operations.
The purpose of an income statement is to show the revenues generated by a company and the expenses incurred during a specific period. By comparing revenues to expenses, the income statement calculates the net income (or net loss), which represents the company's profitability.
Here is a step-by-step process to create an income statement:
1. Start with the revenue section: List down all the sources of income for your business. This typically includes sales of products or services, interest income, or any other revenue-generating activities.
2. Move on to the expense section: Identify and categorize all the expenses incurred by your business during the given period. Expenses might include salaries, rent, utilities, supplies, marketing costs, and others.
3. Calculate net income: Subtract the total expenses from the total revenue to calculate the net income. If the expenses exceed the revenue, it will result in a net loss.
An income statement helps businesses evaluate their financial performance, make informed decisions, and communicate their financial health to stakeholders such as investors, creditors, and shareholders. It is an essential tool for financial analysis and planning.