This shows how revenues stack up against expenses over a period of time, which can be done weekly, monthly, or with every fiscal year. All companies tabulate such reports on an annual basis, and it's good to get a monthly breakout of revenues versus expenses in order to be able to spot trends either for the good or for the bad.

A statement will usually include both gross income and net earnings. Gross income is what is left after deducting the cost of selling goods from actual sales. Those costs will include purchasing items for sale, the value of what's left in inventory, and any refunds paid or discounts offered.

Once you've calculated gross profit, it's time to figure out net earnings, your company's bottom line. This involves deducting operating and general expenses to include salaries, advertising, insurance, and day to day administrative costs. Net operating income defines the difference between profit and loss, but there's one more step involved - taxes. After income tax and interest payments are factored in, what's left is net income.

Example