- An income statement is a business document prepared for a specific trading period which helps calculate the gross and net profits of the period. It consists of two portions: the trading section (Where gross profit is calculated) and the profit and loss section (Where net profit is calculated).
- Financial statements are usually prepared from the trial balance. Every item which is included in the trial balance is only mentioned once in the income statement and the statement of financial position, which we will cover later. However, any adjustments which are mentioned at the bottom of the trial balance will be included in both financial statements.
The income statement can be presented in two ways: the horizontal format or the vertical format. In most of the papers, you will be asked to do it in the vertical format.