---
title: "What is income statement?"
description: "Income Statement explained in plain English: definition, how it works, an example, and how it appears in QuickBooks and Xero."
url: https://ledgerbpo.com/glossary/income-statement/
updated: 2026-09-11
publisher: LedgerBPO (SS Support Network LLC)
language: en-US
---

# What is income statement?

Glossary

An income statement, also called a profit and loss statement, is a financial statement showing a business's revenue, expenses and resulting net income over a period of time, such as a month, quarter or full year.

Updated September 2026

## How income statement works

Revenue is listed first, followed by cost of goods sold to arrive at gross profit, then operating expenses subtracted to arrive at operating income, and finally other income, expenses, taxes and interest to arrive at net income at the very bottom. Each line tells a different part of the profitability story, not just the final bottom-line figure everyone jumps to.

Comparing an income statement across periods or against a budget shows whether revenue and expense trends are moving in the right direction over time. Because the income statement covers a period rather than a single point in time, it needs to be read alongside the balance sheet to get the full financial picture of the business.

## Example

A business's income statement for the quarter shows $150,000 revenue, $60,000 cost of goods sold, leaving $90,000 gross profit, a 60 per cent gross margin overall. Operating expenses of $65,000 bring operating income down to $25,000, and after $2,000 interest expense on a business loan, net income for the quarter comes to $23,000.

## Income Statement in QuickBooks Online vs Xero

QuickBooks Online generates a Profit and Loss report from posted transactions, viewable by month, quarter or a custom date range of choice. Xero produces the equivalent Income Statement (Profit and Loss) report, with options to compare periods or view results by tracking category.

## Common mistakes

- Revenue is recorded before it is actually earned, or expenses are recorded in the wrong period, distorting profit for both the current and the following period.
- The income statement is reviewed only at the bottom line, missing a meaningful shift in gross margin or operating expenses buried higher up the report.
- A single bad month is compared only to the prior month instead of against budget or the same month a year earlier, missing the real context.

## Why it matters

The income statement is what most owners, lenders and investors look at first to judge whether a business is actually profitable, so errors here directly affect how the business is perceived. Misstated revenue or expense timing can overstate or understate profit in ways that mislead decisions about hiring, pricing or financing. Reviewed carefully each period, an accurate income statement gives owners and finance managers a clear, honest read on performance.

## Related terms

- [Balance Sheet](https://ledgerbpo.com/glossary/balance-sheet/)
- [Cash Flow Statement](https://ledgerbpo.com/glossary/cash-flow-statement/)
- [Financial Statements](https://ledgerbpo.com/glossary/financial-statements/)
- [All terms](https://ledgerbpo.com/glossary/)

## How LedgerBPO handles income statement

We code transactions consistently and close the books each period so your income statement reflects actual performance, then deliver it alongside a balance sheet and a short commentary on what moved and why.

[Reports your lender, investor and you will actually read](https://ledgerbpo.com/services/financial-reporting/)

Next step

## Books closed. Invoices paid. Every month.

Tell us what is going on with your books or billing. You will hear from a named person within 1 business day, with a custom quote and a plan for the first close.

- Reply from a named person within 1 business day
- No setup fee, month-to-month
- Your software, your data, no lock-in

Start with a custom quote

[Get a custom quote](https://ledgerbpo.com/get-a-quote/) [Book a 20-minute call](https://ledgerbpo.com/book-a-call/) Or call [+1-657-777-0006](tel:+16577770006) during US, UK or Australian business hours.

---

Source: https://ledgerbpo.com/glossary/income-statement/ · Contact: https://ledgerbpo.com/contact/ · Full site map for agents: https://ledgerbpo.com/llms.txt