Income Statement Equation

The income statement equation typically looks like this:

  • Revenue is what the business earned from the sale of goods and services during this period.
  • Expenses are bills (phone and Internet bill, insurance, payroll, advertising, etc.) incurred during this period.
  • Net income or loss is the net financial result of the business efforts during that period. It must be added to the Equity portion of the balance sheet, which we will discuss in a moment.

Some examples of the types of accounts that influence net income and are reported on the income statement include:

  • Revenue
  • Advertising expenses
  • Repair expenses
  • Utilities expenses
  • Wage expenses

Sample Income Statement

Acme Widgets Inc.Income StatementFor the Month Ended February 28, 20xx
REVENUE
Widget Sales$20,000
Widget Installation$1,500
Interest Income$500
Total Revenue $22,000
EXPENSES
Rent$4,500
Utilities$1,200
Advertising$8,000
Wages$5,000
Total Expenses$18,700
NET INCOME (LOSS)$3,300