🎓 Prepared by students from Boğaziçi University

What Is an Income Statement?

An income statement (profit & loss statement) reports a company's revenues, expenses and resulting profit or loss over a period of time — a month, quarter or year. It answers one question: did the business make money?

Short answer

An income statement shows Net Income = Revenue − Expenses over a period, revealing whether a business was profitable.

From Revenue to Net Income

1
Revenue
Total sales generated in the period
↓
2
− Cost of Goods Sold
Direct costs of producing goods/services
↓
3
= Gross Profit
Revenue minus COGS
↓
4
− Operating Expenses
Rent, salaries, marketing, admin
↓
5
= Operating Income
Profit from core operations
↓
6
− Taxes & Interest
Non-operating costs
↓
7
= Net Income
The bottom line profit or loss

Try it: interactive calculator

Net Income

55,000$

= 150,000-95,000

Total Revenue150,000 $Total Expenses95,000 $

Step-by-step worked examples

A company earns $150,000 in revenue and has $95,000 in total expenses. Find net income.

Net Income = Revenue − Expenses
Net Income = 150,000 − 95,000
Net Income = $55,000

Revenue is $80,000, COGS is $30,000, operating expenses are $25,000. Find operating income.

Gross Profit = 80,000 − 30,000 = 50,000
Operating Income = Gross Profit − Operating Expenses
Operating Income = 50,000 − 25,000 = $25,000

A startup has $40,000 revenue and $52,000 in expenses. Find the result.

Net Income = Revenue − Expenses
Net Income = 40,000 − 52,000
Net Income = −$12,000 (a net loss)

Flashcards

Quick quiz

Q1.Revenue is $200,000 and expenses are $150,000. Net income?

Correct answer: B. Net Income = Revenue − Expenses = 200,000−150,000 = 50,000.

Q2.What does the income statement measure?

Correct answer: B. It's a flow statement covering a period, unlike the balance sheet's snapshot.

Q3.Gross profit equals…

Correct answer: B. Gross Profit = Revenue − Cost of Goods Sold.

Q4.If expenses exceed revenue, the result is a…

Correct answer: C. Expenses greater than revenue produce a net loss (negative net income).

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Common mistakes

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Confusing the income statement with the balance sheet. — Correct: Income statement = a period of activity; balance sheet = one point in time.

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Ignoring the difference between gross profit and net income. — Correct: Gross profit only subtracts COGS; net income subtracts ALL expenses, including tax and interest.

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Assuming revenue equals cash received. — Correct: Revenue is recognized when earned, which may differ from when cash is actually collected.

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Thinking a loss means the company has no cash. — Correct: A net loss is an accounting result; the company may still have cash from loans or savings.

FAQ

What is an income statement?

A financial statement reporting revenue, expenses and net income or loss over a period of time.

What is the income statement formula?

Net Income = Revenue − Expenses, often broken into Gross Profit and Operating Income along the way.

How do you calculate net income on an income statement?

Subtract all expenses (COGS, operating, tax, interest) from total revenue.

Can you give an income statement example?

A company with $150,000 revenue and $95,000 expenses reports $55,000 in net income.