Over a period of time a company earns revenue and incurs expenses. The income statement reports those flows and the resulting profit or loss. It begins with revenue, subtracts the cost of goods sold to arrive at gross profit, then subtracts operating expenses, interest, and taxes to reach net income. The statement is also called the profit-and-loss statement or P&L.

Unlike the balance sheet, which is a snapshot, the income statement covers a span of time—a month, quarter, or year. Accrual accounting means that revenue and expenses are recognized when earned or incurred, not necessarily when cash changes hands. Readers therefore examine both the income statement and the cash-flow statement to understand performance fully.

Investors, managers, and creditors use the income statement to assess profitability, trends, and the relationship between different categories of cost and revenue. Common-size versions that express each line as a percentage of revenue make comparisons across periods and companies easier. Together with the other primary financial statements, it forms the foundation of financial analysis.