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Glossary
Income statement
The document summarizing a company's revenue, costs, and result over a period.
What is an income statement?
The income statement (also called profit and loss statement, or P&L) shows how much a company earned (revenue) and how much it spent (costs) over a given period, usually a year. The difference between revenue and costs is the net result — profit if positive, loss if negative.
Statutory vs. management income statement
There are two versions:
- Statutory income statement — the legally required version, prepared by the accountant, with items grouped according to accounting standards. It serves tax authorities and third parties (banks, shareholders), but is of limited use for operational decisions
- Management income statement — reclassified to highlight the contribution margin, fixed costs, and operating result. This is the tool of management control
Simplified management income statement
| Item | Example |
|---|---|
| Revenue | 3,500,000 |
| – Variable costs | 2,275,000 |
| = Contribution margin | 1,225,000 (35%) |
| – Fixed costs | 820,000 |
| = Operating result | 405,000 |
Why does it matter for an SME?
Without a management income statement updated monthly, decisions are based on feelings. The management income statement is the second of the 3 essential reports for every SME.