The income statement
Objective: Prepare an income statement.
Recommended first: From unadjusted to adjusted trial balance
The income statement reports revenue minus expenses for a period. It answers: did the business make a profit? Owner drawings are not expenses and do not appear here.
A small example
| Service Revenue | $4,000 |
|---|---|
| Rent Expense | ($500) |
| Wages Expense | ($250) |
| Supplies, insurance, depreciation | ($350) |
| Net income | $2,900 |
A readable income statement groups revenue first, then cost of sales if any, then operating expenses, then other income and expenses. The period it covers must be stated in the heading. In this course's simulators, the statement is generated from your own posted entries, so errors in your books show up here.
Read the statement from top to bottom as a story: what was earned, what it cost to earn it, and what remains. A line that looks out of proportion compared with last month is a prompt to check the entries behind it.
Check your work
- Does the heading state the period?
- Are drawings excluded?
- Does net income match revenue minus expenses?
Revenue $4,000 credit; expenses $1,100 debit; net income $2,900.
| Account | Debit | Credit |
|---|---|---|
| Net income | $2,900.00 |
Common mistakes
✗ Including drawings or loan repayments as expenses.
✓ Neither is an expense.
Guided practice
Use hints freely here.
Item 1 of 1
Compute net income
For the month: Service Revenue $14,600.00, Rent Expense $1,300.00, Wages Expense $5,100.00, Utilities Expense $230.00, Owner Drawings $1,650.00. Compute total expenses and net income.
Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 1
Which items belong on the income statement?
Select every item that is reported on the income statement.
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Key terms
- Income statement
- Revenue minus expenses for a period.
- Net income
- Revenue minus expenses.
References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
- U.S. SBA, Manage your finances (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.