What is an income statement?

An Income Statement (also called a Profit and Loss Statement) is a financial statement that shows a company's business results for a specific period of time (usually monthly, quarterly, and/or annually) ... it specifically shows revenue, earnings, expenses, costs, and taxes.

Here's a simplified outline for creating an income statement ...

FIRST ...
Start with: Revenue (Sales) ... [what was the revenue in the period of interest?]
Subtract: Cost of goods sold (COGS) ... [how much did it cost to produce the products and services that were sold?
This Equals: Gross Margin

SECOND ...
Subtracct: Operating Expenses (including selling expenses and general & administrative expenses)
This Equals: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) ...  [Income from operations]

THIRD ...
Add or Substract: Other income and expenses
This Equals: Income before tax

FOURTH ...
Subtract: Provision for income taxes
This Equals: Income from continuing operations

FIFTH ...
Add or Subtract: Income from discontinued operations (net of tax)
This Equals: Income before extraordinary items and cumulative effect

FINALLY ...
Add or Subtract: Extraordinary items (net of tax)
Add or Subtract: Cumulative effect of a change in accounting principle (net of tax)
This Equals: Profit (net income)