Business Income Statements

An income statement is a summary of a company's profit or loss during any one given period of time, such as a month, a quarter, or a year. The income statement, also called a profit and loss statement, records both revenues and operating expenses for a business during this period. From these numbers, the company's net income is derived.

Managers of small businesses can use these statements to find out where their companies are over budget or under budget. This statement makes it easy to identify specific items that are causing unexpected expenditures, such as phone bills, postage or office supplies. For this reason, it's important to format your income statement in a way that takes the categories of your particular business into account.

Pro Forma Income Statements

There is another kind of instrument known as the pro forma income statement. While a regular income statement tracks the financial history of a company over a specified period of time, the pro forma statement is used for projections and planning. A pro forma income statement allows managers and financial officers to predict future trends, so that the company can take advantage of positive predictions and make changes to avert negative outcomes.

Creating a pro forma income statement is an inexact science, of course. Projections can be based on the company's history, such as a usual increase in sales over the holiday season, followed by a slump. But projections must also take into account any variables, expected or unexpected. An announced change in the tax structure would be expected to affect projections, for example, while a warehouse fire could not be predicted.