Income statements show earnings and expenses for a given period, with the bottom line indicating net profit or pay. Investors use company income statements to monitor business health, while personal earnings statements accompany paychecks and show deductions. It’s important to review income statements for errors or discrepancies.
An income statement is a document that shows how much a person or company earned during a given period. For companies, income statements are typically issued quarterly so investors can monitor the health of the business, and are also known as income statements or profit and loss statements. For individuals, earnings statements classically accompany paychecks, showing employees how much money they earned and how much was deducted. In both cases, the document is designed to be as clear and open as possible for people to understand how a business arrived at net income or pay, given the original gross income or pay.
In a company income statement, the document includes gross intake, along with all expenses made by the company during the period covered by the statement. The bottom line of the statement shows the net profit, the amount of money the company actually earned after all of its expenses. Expenses can range from basic overhead costs to the cost of a new acquisition, and shareholders are generally interested in the amount of expenses because they can indicate whether or not the company is running responsibly.
A personal earnings statement like the one you see on a paycheck will provide basic information about how many hours someone worked and at what rate, and list deductions for company health insurance, taxes, retirement accounts, etc. Many earnings statements also show employees how many sick and vacation days they have accrued. The final result of this statement shows the net or net pay that the employee is entitled to after all deductions.
In the United States, individuals can also receive earnings statements from the Social Security Administration. These statements show how much someone earned in their lifetime and how much was paid into Social Security. Depending on the amount paid, the person will be entitled to different amounts of Social Security payment each month. These documents are usually mailed at retirement age, although individuals can request a copy of their earnings statements at any time from the Social Security Administration.
It is important to carefully review an income statement, whether it involves the income of a business or an individual. People should look for obvious errors or discrepancies that suggest problems with the accounting, and in the case of personal account statements, they should point out such errors on an income statement to the accounting department. For example, someone may notice that he or she worked overtime but received no overtime pay, or that an inappropriate amount was deducted for a company-sponsored retirement plan.
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