An Income Statement, also known as a Profit and Loss Statement (P&L), shows how much money a business has earned and spent over a specific period—usually a month, quarter, or year. It highlights whether the business is making a profit or operating at a loss. This report begins with total revenue and subtracts the costs and expenses involved in running the business. The result is the net profit or net loss, which is often called the “bottom line.” The Income Statement is crucial for understanding how well a business is performing and is used by owners, investors, and managers to evaluate profitability and make financial decisions.

Begin by recording your total revenue—this includes all the money earned from sales of products or services during the period. It’s the top line of the income statement, and everything else gets deducted from here

Next, subtract the Cost of Goods Sold, which is the direct cost of producing or purchasing the items you sold.
Revenue – COGS = Gross Profit
Gross profit shows how much is left after covering only the product costs.

Finally, subtract the total expenses from the gross profit to calculate your Net Profit—or Net Loss if your expenses are greater than your revenue. The formula is simple: Net Profit = Revenue – Cost of Goods Sold – Expenses. This final figure is often referred to as the “bottom line” because it shows whether the business actually made money or operated at a loss during the period. It's one of the most important numbers in business, reflecting overall financial performance.

✅ Income Statement shows financial performance over time
✅ Starts with revenue, subtracts COGS and expenses
✅ Net profit tells if your business is earning or losing money
✅ Helps track profitability, cost control, and decision-making
✅ It’s one of the most used reports by owners and investors alike