The Purpose Of The Income Statement

Any business/company needs to know on an annual basis the amount of turnover/sales that were made and the number of expenses/stock purchased in order to establish whether the business made a profit or a loss.

The Income Statement is made up of ledger accounts

For Example:

Sales

Cost of Sales

Overhead Expenses: ie bank charges, insurance, fuel, wages

The Income Statement is related to the Balance Sheet and in order to generate the Income Statement, the ledger accounts in the Balance Sheet have to be used.

For Example:

A Customer invoice will record

Sales                                                             = (Income Statement)

Bank/Cash/Debtors (Accounts Receivable)  = (Balance Sheet).

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