The Income Statement

(The report name itself is the most confusing part of this. Think of it as Report #1 instead. )

The term "Income Statement" is confusing. The statement is a financial report that typically fits on one page and it is the most common Accounting Report discussed in Business. The name is confusing because it reports on both "Income", money flowing into a company, and "Expenses", money flowing out of a company.

The ZAP Accounting Software Income Statement has a few more details than most and an additional sub report.

The report has a start and end date

The report lists all transactions for every account in the chart of accounts for a given date range.

Those accounts are broken into two groups.

  1. Income Accounts

  2. Expense Accounts

Income - Expenses = Net Income or Profit

We include an expense subcategory called Cost of Goods Sold. That simply adds a little more clarity to our Income Statement that is typically not found on the Income Statement.

We also include a Cash Delta Sub-report that is not typically found on an Income Statement.

Anyone familiar with traditional Income Statement reporting will likely realize these are very nice sub-report features to have on the same report.

A Simple Example with Numbers

If you setup a lemonade stand, and the lemonade powder cost you $10, the cups cost you $5, and you sold $35 worth of lemonade, your (gross) income was $35, your expenses were $15 and your "net income" or "profit" was $20.

A three line Income statement might look like:

Income (also referred to as Gross Income) $35 (Gross in German means Large)
Expenses (materials and/or cost of goods sold) $15
Net Income $20

The math and logic is simple. The report name is what makes this confusing. Thus, think of this as a "Net Income Statement" or Accounting Report #1 if that makes it easier.

Why would they name a report after only half of the information it reports on? To confuse you.

When vocabulary is used that does NOT reflect logic, it is often referred to as "dogma", and the US Accounting System is abnormally heavy with dogma. That is why easy concepts were hard to learn and some folks like us don't feel the Dogma was introduced by accident.

The Purpose of an Income Statement is to Report "Net Income" for a specified period of time

"Net Income" is a single number that is obtained by the following equation:
Total Income (aka Gross Income) - Total Expenses

The Total Income and Total Expenses are calculated for a given period of time.

  • Typically a month or a quarter of a year or a year.

  • But it could be for any period of time desired.

  • You could look at Net Income for a one or two day period of time if you wanted to

"What was your gross income for the carnival you worked last week with the popcorn machine?".

  • "It was $400. We did $400 in sales." (aka "We did $400 in revenues", "We did $400 in gross revenues")

"What was your net income for the carnival"

  • "It was $250. The fee for participating was $100 and the popcorn cost us $50".

Why isn't the report then called a "Net Income Statement"? Dunno. That would make more sense. This is "Dogma".

If the value returned from Total Income - Total Expenses happens to be negative, meaning there were more expenses than there was in income, that resulting value is referred to as a "Net Loss" or just "Loss".

From this alternative wording you can see why the "Income Statement" , which should be referred to as a "Net Income Statement" is also referred to as a "Profit/Loss Statement".