THE INCOME STATEMENTUnderstanding Financial Statements

Income Statement• Also called profit and loss statement (P&L)• Shows performance of a business of a ver

period of time (typically a month, quarter, semi-annual, or a year)• Annually for tax purposes•More frequently to use for decision making• Formula to determine performance is• Income(revenue) comes from sales, fees, etc.

REVENUES – EXPENSES = INCOME

Income StatementEXPENSES

• Any costs company incurs in supporting operations

Two categories of costs:Variable Costs- vary according to the sales activity of the companyFixed Costs- constant expenses- doesn’t change regardless of sales activity (ex: rent, insurance, etc.)

Class ActivityInstructions: Read the article below on Income Statements. Review the Sample Income Statement. Work with a partner to ensure you understand how to interpret the statement. Collaborate to create an income statement for The Falcons’ Nest. Assume the following information:Net Sales: $15,000Cost of Goods: $25,000Bad Debt: $50Advertising: $70Mailing: $300

Income Statement Information