An income statement is a financial document that is shows the financial performance of an individual or business over a specific period of time. Income statements are very important to financial management because they show whether a person or business is profitable. This determination can influence decisions related to credit, borrowing, and investing. If a business owner is spending more money than they are earning, investors and lenders will be able to manage their risk using this document.
An income statement is also known as a profit or loss statement. The income statement outlines financial income and debts for a specific accounting period. This period of time could be a year, a month, or any other time period. Only the financial losses and profits for this time period will be included on the income statement. An income statement does not include cash income or distributions.
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Income Statement vs Balance Sheet
An income statement presents a summary of expenses and income over a period of time (usually one year). An income statement shows the result of a business’ operations.
A balance sheet provides the financial position of a company at a specific point in time. The balance sheet is often much more detailed than an income statement. The balance sheet shows a company’s assets, liabilities, and shareholders’ equity.
Profit and Loss vs Income Statement
There is no difference between a Profit and Loss Statement (P&L) and an Income Statement. These two terms may be used interchangeably.
Cash Flow vs Income Statement
A cash flow statement shows the actual cash received and spent during a specific period of time. It shows the current liquid assets of a company at a certain point in time.
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The difference between a cash flow statement and an income statement is that an income statement also takes into account some non-cash accounting items, such as depreciation.