The income statement has many aliases. For instance, it is sometimes called an earnings statement. This name can be a bit deceiving, though, because even if a business is earning income, it isn’t necessarily earning a profit. Profit is the income left over once all expenses are paid. The income statement is the only financial statement that enables the business to look at its “bottom line.”

The income statement is also known as the operating statement. Its information is used by businesses to make a variety of decisions that affect how the business will operate. This includes decisions such as how to invest money and ways to cut back on expenses. The statement is also used to create another financial document that directs how the business will operate—the cash flow statement.

Traditionally, the income statement was referred to as the profit-and-loss statement, for obvious reasons—it shows a business’s profit and loss. The basic calculation used to analyze an income statement is “income minus expenses.” If the outcome is positive, the business has a profit. If the outcome is negative, the business has a loss. Over time, however, income statement has replaced profit-and-loss statement as the most common business term for this important summary.