What is the purpose of an income statement?

The purpose of an income statement is to provide a summary of an organization's revenues and expenses over a specified period. This financial statement details how much money the organization earned from its operations and how much it spent to generate that income, ultimately culminating in the net income or loss for the period. By evaluating the income statement, stakeholders can assess the company's profitability and operational efficiency.

The income statement is distinct from other financial statements; for instance, it does not directly show cash flow, which would typically be covered by a cash flow statement. Additionally, while it reflects past performance based on historical data, it does not serve as a tool for forecasting future financial performance—that role is fulfilled by projections or budgeting documents. Finally, it does not provide a balance sheet overview; that function is reserved for the balance sheet, which presents the company’s financial position at a specific point in time by detailing assets, liabilities, and equity.