Today we continue our three part blog series explaining the financial statements that your bookkeeper or accountant present you with at the end of the month or quarter. We'll be going over the income statement today, which is also called the profit and loss statement, statement of operations or statement of income.
Now here is why the income statement is important:
So the Income Statement is divided into the following three parts – total revenues, total expenses and net income.
Total revenues include the revenues generated from the normal operations of a practice, as well as rent and interest revenue. Following total revenues you will see the total expenses category. This includes all forms of expenses incurred in the direct operation of the practice. Some examples of the expenses included are wages, salaries, rents, utilities, insurance and supplies. The last section of the income statement is the net income section. Net income shows what is left over once total expenses are subtracted from the total revenue. If the net income is a negative number, this is considered a net loss for the practice. A net loss means that the practice was not able to operate profitably. If a banker, lender, creditor or investor is evaluating the profitability of a practice and they see a net loss, they will be hesitant to invest or extend credit to the practice.
Here are some interesting facts to note about the income statement:
So that’s a simple breakdown of the income statement. Next week we will be looking at the Statement of Cash Flows. See you then!