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The Income Statement

Objective 2 In this section we introduce you to the Income Statement and how it is used to provide information on the profits and losses of the company.

The Income Statement measures the difference between revenue (an increase in assets) and expenses (a decrease in assets) that has occurred during an accounting period. When revenues are greater than expenses then the company has made a profit. When revenues are less than expenses then the company has made a loss.

The Income Statement, also referred to as a Profit and Loss Statement (P&L), indicates how revenue (money received from the sale of products and services, also known as the “top line”) is transformed into net income after all expenses have been accounted for. Net income is also known as the “bottom line”.

The preparation of the Income Statement may be done daily, monthly, quarterly, semi annually, annually. If its intended use is for financial management purposes, then the Income Statement can be prepared for any chosen period.

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