Income Statement

The income statement may be defined as a summary of the revenue (income), expenses, and net income of a business entity for a specific period of time. This may also be called a profit and loss statement, an operating statement, or a statement of operations. Let us review the meanings of the elements entering into the income statement.
Revenue. The increase in capital resulting from the delivery of goods or rendering of services by the business. In amount, the revenue is equal to the cash and receivables gained in compensation for the goods delivered or services rendered.
Expenses. The decrease in capital caused by the business's revenue-producing operations. In amount, the expense is equal to the value of goods and services used up or consumed in obtaining revenue.
Net income. The increase in capital resulting from profitable operation of a business; it is the excess of revenue over expenses for the accounting period.
It is important to note that a cash receipt qualifies as revenue only if it serves to increase capital. Similarly, a cash payment is an expense only if it decreases capital. Thus, for instance, borrowing cash from a bank does not contribute to revenue.
In many companies, there are hundreds and perhaps thousands of income
and expense transactions in a month. To lump all these transactions
under one account would be very cumbersome and would, in addition,
make it impossible to show relationships among the various items. To
solve this problem, we set up a temporary set of income and expense accounts.
The net difference of these accounts, the net profit or net loss, is
then transferred as one figure to the capital account.

*** Don't Forget!
The income statement is also known
as a profit and loss statement, an operating
statement, or a statement of
operations.