A year-end income statement summarizes a company’s revenues and expenses for the 12 months prior to the end of its fiscal year, which may not necessarily be December 31. It is used to determine whether the business is operating at a profit or loss and is part of the company’s consolidated financial statements. Financial statements are generated for specific purposes, including tax reports, payroll, and reporting requirements for government agencies and investors. The year-end income statement is used to zero out income and expense accounts and pay income taxes based on the results.
A year-end income statement presents a summary of a company’s revenues and expenses for the 12 months prior to the end of a fiscal year. For many companies, their fiscal year mirrors a calendar year and ends on December 31, but like many companies they use a custom fiscal year that ends in a month other than December. This income statement is typically part of the company’s consolidated financial statements that are prepared annually by an independent auditor and may be included in the company’s annual report to investors.
Businesses use financial statements to assess the condition of the business from various perspectives. The four standard statements that are regularly used in the business world are the balance sheet, the statement of cash flows, the income statement, and the statement of net worth. An income statement is used to determine whether the business is operating at a profit or a loss. Compare income to expenses over a period of time, which is usually a year but can be as short as a month.
Financial statements can be compiled from a company’s accounting system at any time, but there are certain times of the year when statements are generated for specific purposes. Most companies are required to produce financial statements at the end of the year, particularly to allow the company’s accountants to prepare tax reports, close the year’s payroll, and meet reporting requirements for government agencies and investors. A year-end income statement can refer to the end of the calendar year or the end of the company’s fiscal or operating year. The statement will indicate the year ending date at the top of the report. If the year-end date is not December 31, the company uses a fiscal year.
Businesses use a year-end income statement to present 12 months of income and expenses, detail taxes that have been paid, and arrive at a net income or loss figure. This tells management and investors whether the company has been operating at a profit, and whether management has a tight enough reign over expenses versus revenue. It also allows analysts to generate financial ratios based on information that can reveal whether continued or future investment in the company is advisable.
Most importantly, the year-end income statement is generated to zero out the income and expense accounts in a company’s accounting system. Tax laws establish the economic cycle in 12 months. At the end of each cycle, the business must add up the total income and expenses and pay income taxes based on the results. The next cycle starts both account types at zero, so there is no confusion about which income has already been taxed.
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