What Is the Purpose of an Income Statement?
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.
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.