In the financial industry there are four statements that need to be prepared by the businesses at the end of each quarter and end of company’s fiscal year. There is the balance sheet, statements of cash flow, statements of retained earnings and the income statement. Within this essay, I will be explaining on how and why we use one of the statements; which is income summary. I will also be describing if the account is a temporary or permanent account. The following is the definition of income summary; it’s a temporary account into which revenues and expenses are transferred prior to their final transfer into the capital account. The income statement is a summary of a business expenses and revenues during a specific period of time; usually it can be quarterly or one year statements. Income statement is also known by the term of Profit and loss, statement of earnings or statement of operations. The report summarizes the net income (or net loss) for the period by collecting the sum of all the expenses (a debit) and the sum of all the revenues (a credit). The format of the income statement or the profit and loss statement will vary according to the complexity of the business activities. However, most companies will have the following elements in their income statements:
A. Revenues and Gains
1. Revenues from primary activities
2. Revenues or income from secondary activities
3. Gains (e.g., gain on the sale of long-term assets, gain on lawsuits)
B. Expenses and Losses