Let's see this example, Navya has been running 3 pizza outlets, named “Roma”, in different parts of the city since the last 3 months. Her outlets are located in strategic locations and attract a lot people leading to high sales. It is the time of the year to file taxes and she now has to prepare the income statement, balance sheet and cash flow statement of her business to understand whether she has made profits or losses during the previous financial quarter and to understand what her business owns & owes.
Income statement helps understand a company’s performance over a specific period of time. Let’s assume a time frame between 1st Jan 2018 and 31st March 2018. An income statement helps us understand how much money the business earned, during that specific 3 month period, by selling the goods/services it produced. It also lists out the expenses that the company incurred during the specific period and finally arrives at the profit / loss number.
In the following articles in the Income Statement category, various items in the financial statements will be discussed in more detail using the same example.