Partially copied from Accounting 101: Easy Accounting and Bookkeeping for Beginners © 2017, 2018 Denver Pettigrew, PhD, CPA, MBA

The Income Statement AKA the Profit and Loss Statement

Important Summary of Relationship Between Revenues, Expenses, and Net Profit: If Expenses (including Cost of Goods Sold) are Greater than Revenues = Net Loss for Period; If Revenues are Greater than Expenses (including Cost of Goods Sold) = Net Income for Period.

The income statement, also known as the profit and loss statement, summarizes the operating activities of the organization over a period called the operating cycle of the organization. In defining the chart of accounts (COA) in chapter 2, general ledger accounts that make up the income statement were described as temporary or nominal accounts because their balances are zeroed out at the end of an operating cycle (or financial period). These accounts begin each financial period with zero balances to account for activities in the new operating cycle.

Important Note: The Recognition concept in accounting is that revenue is recognized when earned; that is, when the firm has completed its obligation in the transaction. On the other hand, expenses are recognized immediately when incurred (by the firm) and is related to the Principle of Conservatism.

To See More

The complete chapter can be found in Accounting 101: Easy Accounting and Bookkeeping for Beginners and The Zen of Bookkeeping and Accounting: Basic Accounting for Pre-College and New Learners