Q:

What is the purpose of an income statement?

A:

Quick Answer

The purpose of the income statement is to show the profitability of a company during a specific period, says accountant Harold Averkamp. Investors use this statement, along with other financial statements, to determine if a business is a good investment.

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Full Answer

Income statements contain information about a company's income and expenses. This information allows a business owner or potential investor to determine a company's gross profit margin, cost of goods sold, total expenses and net profit. Business experts from Entrepreneur.com say the income statement acts as a scorecard for a company's financial performance because it reflects a company's ability to generate cash. Another name for the income statement is the profit and loss statement, according to Averkamp.

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