Personal and Business Income Statements
An income statement is basically the same for people and for business. In our personal lives we have income which is derived from a salary, of from other sources such as earning from a small business, alimony, disability and other sources. In business the income is derived from the sale of a service or a product. In our personal lives we have expenses, rent or mortgage payments, utilities, food, entertainment, gas for the car etc. Businesses also have expenses that are quite similar. They have rent on offices, utilities, travel and entertainment etc. The only difference is that they may have more types of expenses such as what is called "cost of product" these are cost directly related to the sale of a product or service.
Understanding an income statement whether personal or business is not as complex as you may think. It is comprised of incoming funds out outgoing funds. There are a few wrinkles in the way that things are handled in business different from personal such as depreciation of assets and recording expenses that have not yet been paid but have been incurred called accruals, but that will be for another blog post.
Next blog - the In's and Out's of Cash Flow.