An income and expense statement is designed to identify all forms of income and expenses in a given period of time.
An income and expense statement is a type of financial document designed to identify all forms of income received in a given period, while documenting all payments or expenses related to the same period. In addition to serving as a means of collecting historical data, it is also possible to prepare this type of report for a future period, basing the combination of expenses and income on the projections of activity for that period. With any of the applications, the idea is to use the data to analyze the balance between income and expenses and determine if the result of the activity is the best for the business operation.
One of the purposes of the income and expense statement is to create a tool that is useful in the task of financial management. For these purposes, all relevant types of income and expenses for the year are considered. This means that both realized and unrealized income, known at the time, is included in the statement details, along with paid and unpaid debt obligations. There are some exceptions that may apply, such as the exclusion of income generated from the sale of a capital asset, or income or sales related to a legacy.
The value of an income and expense statement, either for a recently completed period of time or as a projection for a future period, is to get an idea about the financial well-being of the company. This approach allows you to analyze basic information that can, in turn, trigger some changes in the way the company manages debt or the way it uses available resources. Along with for-profit businesses, other organizations like clubs, societies, or even charity-operated hospitals can make use of this particular tool to track the relationship between income and debt management.
Ideally, the income and expense statement will indicate that the current level of income generation from various sources is sufficient to sustain the operation, given the amount of debt currently being managed. By comparing each associated income and expense statement over several successive periods, it is possible to identify positive or negative trends that can be more closely evaluated and possibly generate insights on how best to organize the company’s finances. This can increase the chances of strengthening the company’s financial position, or at least keeping the damage to that stability as low as possible during some kind of broader economic downturn.