What is the purpose of an income statement?

The purpose of an income statement is to provide a financial document that shows the profits and losses of a business over a specific period of time. This statement details revenues earned and expenses incurred, allowing stakeholders, such as management, investors, and creditors, to assess the company's financial performance.

An income statement typically includes sales revenue, cost of goods sold, gross profit, operating expenses, and net income. By clearly illustrating how much a company has earned or lost, the income statement plays a crucial role in financial analysis and decision-making for future operations.

While customer satisfaction reports, summaries of assets, and payroll records are important for various aspects of business management, they do not reflect the company's profitability like an income statement does. The key focus of the income statement is to measure operational effectiveness and overall profitability, making it essential for evaluating financial health.