Income statement: format, example and free template

What is an income statement?

The U.S. Securities and Exchange Commission explains it in its Beginners' Guide to Financial Statements:

“An income statement is a report that shows how much revenue a company earned over a specific time period (usually for a year or some portion of a year). An income statement also shows the costs and expenses associated with earning that revenue.”

The same guide compares the layout to a set of stairs: “You start at the top with the total amount of sales made during the accounting period.” Each step down subtracts a group of costs, and the last line shows what the business earned or lost.

An income statement is also called a profit and loss statement (P&L). For P&L examples by type of business, see P&L examples for a freelancer, a retail shop and a software company.

Income statement example

Maple Street Bakery, Inc. is a fictional bakery. Its numbers for the year are below in both formats, worked out with the same code as the builder: net revenue of $408,500, gross profit of $260,200 and net income of $72,100.

Multi-step income statement example

Single-step income statement example

Both formats end on the same net income, $72,100. They differ only in how the lines are grouped. To start from these numbers and change them, press the button Fill in the example numbers in the builder.

Income statement format: the lines in order

A multi-step income statement lists these lines from top to bottom. Each subtotal is the line above it minus the costs in between.

1. Revenue. Everything the business sold or billed in the period: $412,000 in the example.
2. Returns and allowances. Refunds and price reductions given after the sale ($3,500). Revenue minus returns is net revenue: $408,500.
3. Cost of goods sold. The direct cost of what was sold, such as ingredients and packaging for the bakery: $148,300.
4. Gross profit. Net revenue minus cost of goods sold: $260,200.
5. Operating expenses. The costs of running the business that are not tied to each sale: wages, rent, utilities, marketing, insurance and depreciation, $165,000 in total.
6. Operating income. Gross profit minus operating expenses: $95,200. It shows what the main business earns before financing and taxes.
7. Other income and expenses. Items outside the main business, such as interest earned ($1,200) or a loss on selling equipment ($800), and the interest paid on loans ($4,600).
8. Income before income tax. Operating income plus other income, minus other expenses and interest: $91,000.
9. Income tax expense. Tax on the profit of the period, for a business that pays income tax itself: $18,900.
10. Net income. The bottom line: $72,100. When expenses are higher than revenue the result is a net loss, shown in parentheses.

Income statement formulas

• Net revenue = revenue - returns and allowances = $412,000 - $3,500 = $408,500
• Gross profit = net revenue - cost of goods sold = $408,500 - $148,300 = $260,200
• Operating income = gross profit - operating expenses = $260,200 - $165,000 = $95,200
• Income before income tax = operating income + other income - other expenses - interest expense = $95,200 + $1,200 - $800 - $4,600 = $91,000
• Net income = income before income tax - income tax expense = $91,000 - $18,900 = $72,100
• Gross margin = gross profit / net revenue = $260,200 / $408,500 = 63.7%
• Operating margin = operating income / net revenue = $95,200 / $408,500 = 23.3%
• Net margin = net income / net revenue = $72,100 / $408,500 = 17.6%

To compare your margins, use the profit margin calculator; to find the sales that cover your fixed costs, the break-even point calculator. More tools for the numbers of a small business are on the Money Desk. Before a first hire, the income statement shows whether the profit can carry a new wage: see the steps to hire your first employee.

How to read an income statement

Read it from the top down, and next to the statement for the period before: one statement alone says little until you see the direction of each line.

1. Revenue against the last period. Is net revenue growing, flat or falling compared with the same period last year or last month? Put the two statements side by side and look at the change in each line.
2. Gross margin. Gross profit as a share of net revenue: 63.7% for the bakery. When it falls while revenue grows, the cost of what you sell is rising faster than your sales.
3. Operating margin. The SEC guide: “To calculate operating margin, you divide a company’s income from operations (before interest and income tax expenses) by its net revenues”. For the bakery that is 23.3%: what is left of each sales dollar after running the business.
4. Net margin. Net income as a share of net revenue: 17.6%, the part of each sales dollar the business keeps after interest and tax.
5. Each line as a share of revenue. Dividing every line by net revenue shows where the money goes: in the example, cost of goods sold is 36.3% of net revenue and operating expenses are 40.4%.

Multi-step vs single-step income statement

A multi-step income statement shows subtotals on the way down: gross profit, operating income and income before tax. It separates the main business from financing and other items, so gross margin and operating margin can be read straight from it. Lenders and investors often ask for this format.

A single-step income statement puts every revenue and gain in one group and every expense and loss in another, and subtracts once: total revenues and gains ($409,700 in the example) minus total expenses and losses ($337,600) equals net income ($72,100). It is shorter and quick to prepare, which suits a small business with few lines.

Both give the same net income. The builder shows your numbers in both formats, and the .csv download has both.

Income statement lines on Schedule C (Form 1040)

A sole proprietor reports the business's profit or loss to the IRS on Schedule C (Form 1040), Profit or Loss From Business. The 2025 form starts in the same order as a multi-step income statement: revenue, returns, cost of goods sold and gross profit. It then adds line 6, “Other income, including federal and state gasoline or fuel tax credit or refund (see instructions)”, and line 7, “Gross income. Add lines 5 and 6”, before the expenses in Part II. The line names below are quoted from the form.

Income statement line	Schedule C (Form 1040), 2025
Revenue	Line 1, “Gross receipts or sales”
Returns and allowances	Line 2, “Returns and allowances”
Net revenue	Line 3, “Subtract line 2 from line 1”
Cost of goods sold	Line 4, “Cost of goods sold (from line 42)”
Gross profit	Line 5, “Gross profit. Subtract line 4 from line 3”
Operating expenses and interest	Lines 8 to 27b, totaled on line 28, “Total expenses before expenses for business use of home. Add lines 8 through 27b”
Net income	Line 31, “Net profit or (loss). Subtract line 30 from line 29.”

Interest on business loans is one of the expense lines in Part II of the form: line 16a, “Mortgage (paid to banks, etc.)”, or line 16b, “Other”. Schedule C has no line for income tax: for a profit, line 31 says to “enter on both Schedule 1 (Form 1040), line 3, and on Schedule SE, line 2.” Check the form and its instructions for what belongs on each line.

Income statement vs balance sheet vs cash flow statement

The SEC guide sums up the three: “Balance sheets show what a company owns and what it owes at a fixed point in time. Income statements show how much money a company made and spent over a period of time. Cash flow statements show the exchange of money between a company and the outside world also over a period of time.”

Statement	What it shows	Time it covers
Income statement	Revenue, expenses and the net income or loss	A period: a month, a quarter or a year
Balance sheet	What the business owns, what it owes and the owner's equity	One date
Cash flow statement	Cash coming in and going out	A period

For filled-in balance sheets, see the balance sheet examples.

This page is general information, not tax or accounting advice. For your own return or financial statements, talk to a CPA or a tax professional. See how we check the sources.

Questions people ask

Sources (2)

• U.S. Securities and Exchange Commission: Beginners' Guide to Financial Statements
• IRS: Schedule C (Form 1040) 2025, Profit or Loss From Business (PDF)

Checked Oct 23, 2026 · How we verify every rule · Report an error

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GuideP&L examples by type of businessGuideBalance sheet examplesToolProfit margin calculatorToolBreak-even point calculator