Accounting

The Incomes portion of the statement, in accounting, will summarize all of the incomes received from operating the business. If it sells a product, it will be product sales. If it is a service company, it will be service income. Many companies have both types of income. The major difference between the two types of income relates to the cost of goods sold. For product sales, the cost of the product must be subtracted from the income. If you offer services, there isn't a cost to the product. Importantly, this income is from doing the entity's main business.

On the other hand, Other Income in accounting - will summarize all income that doesn't come from the entity's main business. For instance, if it had extra cash and invested the money, the interest received would be an Other Income because investing money is not the main business. In each company, what constitutes monies received from the main business and those received as other income varies with the line of business. The important attribute is not just the company making money, but how it is being made. Preferably, it is from doing the main business.

Next, entities spend money as a cost of doing business. They must pay utilities, buy machines, hire people, and do many other activities. Just like income, all costs related to the main line of business are expenses. They will be summarized in the Expenses section of the Profit and Loss, in your accounting. Hopefully, these expenses won't exceed the income they produce.

Also, there could be some expenses related to making other income. For instance, if the company bought shares of stock with the extra money, there could be expenses related to buying and selling commissions. The Other Expenses are then summarized in the other expense section of the statement.

Finally, we come to the last section of the statement, often referred to as the 'bottom line.f we take both income pieces, Income and Other Income, and subtract both expense pieces, Expenses and Other Expenses, we have the Net Income. This is an essential number to both the owners and operators of the business. It is the reward the entity received for being in business. If there is more income than expenses, we have a Net Profit. If the expenses exceed the income, we have a Net Loss.

The Profit and Loss Statement then, in accounting, gives us a view of how the business did during the period of the statement. It doesn't say anything about what has happened prior to or after the dates on the statement. Too, it doesn't help us predict what will happen or how robust the entity is today. Therefore, the statement has a very narrow, but important, perspective--One that is used by investors, owners, managers, and others analyzing the state of the business.