In a previous article I have talked about setting up a balance sheet for your company. Now I would like to cover the next type of statement you will run into during your time in business. This form is none other than the Income Statement.

The income statement has a simple and straightforward purpose, to report the success or failure of the company’s operations for a period of time. The net income (or loss) is determined by deducting expenses from revenues.

Outside of the company itself, there are two groups interested in a company’s income statement. Investors are interested in the past income because it can give information about possible future income which may affect the stock price. The second group of interested people would be creditors; they certainly don’t want to lend money if there is no way that the company can pay it back.

Here is an example using the fictitious currency ‘Planet Aridni Dollars.’

It is important to notice that any amounts received from issuing stock are not revenues, and any amounts paid out as dividends are not expenses. Neither one of those are reported on this statement.

After your income statement is complete, you are ready to go on to your retained earnings statement next, which will show the amounts and causes of changes in a companies working capital.