Structure of an income Statement
The profit and loss account compares the expenditure and income of a company. The difference results in the success, which can be a profit or a loss, contrary to the linguistic usage.
In addition to the balance sheet, which shows the assets and liabilities, a company's accounting also includes the income statement, which shows the profits and losses from operating activities. In principle, the income statement is a comparison of expenses and income. The difference between expenses and income results in a profit or loss.
Income statement: Expenses
The production of goods and the provision of services causes expenses for the company, e.g. by having to purchase materials, pay wages to staff, wear out equipment or advertise products. This consumption of value is called expenditure in accounting.
Income statement: Revenue
The sale of products or the provision of services brings money into the company and therefore forms an increase in value, which is also called revenue in accounting.
An income statement is always prepared for a certain period of time and then starts again from the beginning (depending on the company: monthly, quarterly, half-yearly or annually).
The success is equal to the balance of the profit and loss account, which is why the profit and loss account is also a common name. A clear order of the expense and income accounts does not exist and can be determined by each company itself.
Income statement: Depreciation
A special feature are fixed assets such as vehicles, buildings, machines and office equipment that are used during several years. They are posted as an increase in fixed assets in an asset account in the balance sheet when they are purchased.
The use and utilisation of these fixed assets results in depreciation (e.g. after 10 years of use, a vehicle is only worth a fraction of its purchase price). The consumption of value is also referred to as depreciation and is recorded as an expense in the income statement.
Income statement: Impact on net assets
The net assets or equity of a company result from the difference between assets and liabilities in the balance sheet (see blog entry). All business transactions that have an effect on the income statement (generally those business transactions that trigger a posting in the income statement) always influence the net assets of the company. Expense entries lead to a decrease in net assets (the purchase of material costs money). On the other hand, income entries lead to an increase in net assets (the sale of products brings money into the coffers).
