An Income Statement Example

Previous lesson: Accounting Reports 
Next lesson: Statement of Owners Equity

Looking for an income statement example and explanation? You're at the right place.

The income statement is the first component of our financial statements. It is also known as the profit and loss statement.

Income Statement Sample

The income statement is a report showing the profit or loss for a business during a certain period, as well as the incomes and expenses that resulted in this overall profit or loss. The amount of the profit or loss for a business during a certain period indicates the financial performance of the business.

Note that the above income statement format is for a service business (such as a medical, accounting or legal practice, or a business that provides services such as plumbing, cleaning, consulting, design, etc.). If you would like to see the income statement format for a trading business (a business that buys and sells goods) then check out the lesson on Sales, Cost of Goods Sold and Gross Profit. To see the income statement format for a manufacturing business (a business that makes goods themselves) check out the lesson Accounting for Manufacturing Businesses.

Also note from the income statement example above that a common expense is interest paid (or "bank charges"). Interest is often payable on loans taken from the bank (or taken from other sources). A loan of $10,000 may have an interest rate of 10%. This means that if you haven’t paid the loan back in a year, you would owe $1,000 more ($10,000 x 10%). 

Income Statement Accounting Period

An income statement usually covers a year; however this statement may be drawn up for shorter periods, such as one month, three months (quarters) or six months. The period of time that is covered by the income statement (and other financial statements) is called the accounting period.

A regular 12-month accounting period does not necessarily have to begin on the first day of the year and end on the last. Accounting periods can, for example, run from March 1st to February 28th, or July 1st to June 31st, etc. The choice of the accounting period rests with the enterprise itself.

Creating the Income Statement from the Trial Balance

The income statement is drawn up from the figures in the trial balance. Let's look at an example. Our previous trial balance for George’s Catering is shown below.

We will now take the income and expense items and create a simple income statement:

A Simple Income Statement Example

Note that when we are creating an income statement, we only take the incomes and expenses from the trial balance, we ignore everything else (assets, liabilities and owners equity).

Budgeted Income Statements

Budgeted income statements can also be drawn up, showing targeted figures for sales, expenses and profits. These budgeted figures can then be compared to the actual figures and action can be taken to rectify any shortfalls. 

Budgeted Income Statement

In the budgeted income statement above, we can see that the actual profit for the period is about $8,500 less than what was planned for. This was due to the income being $5,400 less ($100,000 – $94,600), and the expenses (such as water and electricity) being greater than expected.

These budgeted figures would normally be drawn up based on actual figures from past years, but taking into account any expected future changes. The budgeted figures (and the way these figures were obtained) could be explained or justified in additional notes to the income statement.

Hope you enjoyed our income statement example. Now check out the next report in the financial statements - the statement of owner's equity.

Return from Income Statement Example to Accounting Reports 

Return from Income Statement Example to Home Page 

Previous lesson: Accounting Reports 
Next lesson: Statement of Owners Equity

Questions Relating to This Lesson

Click below to see questions and exercises on this same topic from other visitors to this page... (if there is no published solution to the question/exercise, then try and solve it yourself)

Sale of Scrap Raw Material 
In an income statement where do you post a sale of scrap raw material?

Income, Expenses and Retained Earnings Question 
Q: Andersen's Nursery has sales of $318,400, cost of $199,400, depreciation expense of $28,600, interest expense of $1,000, and a tax rate of 34%. The …

Common Size Income Statement 
1. Prepare a common sizes income statement and balance sheet for McDonough product. The first column of each statement should present McDonough product …

Relation of Profit to
Opening & Closing Inventory
Q: Why is the gross and net profit directly proportional to the closing inventory? So if the stock is over valued, the profit increases, and vice versa. …

Income Statement - Six Month Period (Multiple Choice Question) 
If the income statement covered a six month period ending on November 30, 2010, the third line of the income statement would read: A. Month ended November …

Investment table 
How do u prepare an investment table?

Goodwill and its Revaluation 
What do I do with goodwill and the revaluation of goodwill?

Good morning! My director of finance asked me to create a spreadsheet showing how the business is doing on a weekly base. I created a s-sheet with …

Finance Table 
Q: Is there different ways to create a finance table? A: Kaleb, thanks for your question. There are definitely different ways to create a finance …

Manufacturing Business -
Trial Balance
Q1: What do you include in a manufacturing business' trial balance? Q2: What do you do when the trial balance doesn't balance? Q3: Are expenses …


Have your say about what you just read! Leave me a comment in the box below.

© Copyright 2009-2018 Michael Celender. All Rights Reserved. 
Click here for Privacy Policy.