Financial Management: Principles and Applications, 13/e

3.2 The Income Statement

An income statement, also called a profit and loss statement, measures the amount of profits generated by a firm over a given time period (usually a year or a quarter). In its most basic form, the income statement can be expressed as follows:

$$\text{Revenues (or Sales) }-\text{ Expenses }=\text{ Profits}$$(3–1)

Revenues represent the sales for the period. Profits are the difference between the firm’s revenues and the expenses it incurred in order to generate those revenues for the period. Recall that revenues are determined in accordance with the revenue recognition principle and expenses are then matched to these revenues using the matching principle.

The Income Statement of H. J. Boswell, Inc.

The typical format for the income statement is ...