After completing the preparation of the adjusted trial balance, which contains all the account balances after the adjustment, then the financial statements of the company are prepared, and the first statement that is prepared is the income statement, so that the revenue and expense account balances are transferred to prepare the income statement and identify the income result whether profit or loss.

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Income Statement

The income statement also called a profit and loss statement is a statement that is prepared to know the result of the company's income, whether it is a profit or loss during a specific time period, by matching the revenue to expenses and the difference between them will be either profit or loss. If the revenue greater than the expenses, the result is a profit, but if the expenses are greater than the revenue, the result is a loss. The income statement is prepared in one of two ways; either in a brief way known as the Single-Step income statement, or in several steps known as the Multi-Step income statement and the two ways give the same result.

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Elements and items of the income statement:

Revenue (net sales)

Revenue is defined as the income that a company generates when providing a service or selling goods to others. the income that are made from providing a service to others are known as (revenues), whereas the income that are made from selling the goods to others are known as (sales).

Cost of sales (cost of revenue):

At the service entity, the cost of revenue represents the expenses that were directly charged to the service and which contributed to the revenue.
At the commercial entity, it is known as the cost of sales and it represents the cost of the sold goods, which are calculated according to the used inventory system as will be explained in the lesson of accounting treatment of inventory.
At the industrial entity, the cost of sales represents the cost of direct material ,direct labor and indirect manufacturing cost as will be explained in the cost accounting lessons.

Operating Expenses

The operating expenses represent the expenses incurred by the company in order to obtain the revenue; they can be divided into administrative and general expenses such as salaries, wages, electricity, telephone, etc. and sales and marketing expense such as advertising and sales expenses and other expenses.

Other Revenue and Profits

The other revenue and profit represent the revenues or profits that the company obtains as a result of operations or activities that are not related to the main activity of the company, such as the profits that come through the company's investment in the stock market or profits resulting from the sale of fixed assets or from the lease of part of its property.

Other Expenses and Losses

The other expenses and losses represent the expenses and losses incurred by the company as a result of operations and activities that are not related to the main activity of the company, such as losses resulting from the company's investment of its money in the stock market and losses resulting from the sale of fixed assets and so on.

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Single-Step income statement

This statement is distinguished by its ease of preparation and understanding of its content and simplicity, as the elements of the income statement are distributed on two items, one item pertaining to revenues, whether they are operating revenues or other revenues and profits, and another item pertaining to expenses, whether they are operating expenses or other expenses and losses, the difference between the sum of the two items represents the net income, whether it is profit or loss.

Total Amount	Description
	Revenue
xxx	اTotal Revenue
xxx	Other revenue and profits
xxx	Total Revenue
	(-) Expenses
xxx	Administrative and general expenses
xxx	Selling and marketing expenses
xxx	Other expenses and losses
(xxx)	Total expenses
xxx	Net income (profit / loss)

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Multi-Step income statement

This statement is distinguished by that it provides detailed information about income. It shows information on the gross income, on operating income and on net income before and after tax, as follows:

Total Amount	Description
xxx	Total Revenue
(xxx)	(-) Cost of revenue (cost of sales)
xxx	Gross income (profit / loss)
	(-) Operating expenses
	Administrative and general expenses
	Selling and marketing expenses
(xxx)	Total operating expenses
xxx	Net operating income (profit / loss)
xxx	(+) Other revenue and profits
(xxx)	(-) Other expenses and losses
xxx	Net income before tax (profit / loss)
(xxx)	(-) Income tax
xxx	Net income after tax (profit / loss)

As you observe that the net income is identified using this method through several steps as follows:

The first step: identifying gross income (gross profit or loss):

Gross income represents the difference between revenue and the cost of revenue, if any, and the result is either gross profit or gross loss.

The second step:Identifying operating income:

Income from the operating activities represents the difference between gross income and operating expenses.

The third step: Identifying the net income before tax (net profit or net loss):

After identifying the net income from operating activities, other revenue is added and other expenses are deducted to access the net income before tax.

The fourth step: identifying the net income after tax (net profit or net loss):

If the laws in the state impose on the company an income tax at a certain rate, then the value of the tax due is deducted from the net income of the period in order to identify the net income made after tax deduction (profit or loss).

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Closing the revenue and expense account:

The revenue account and the expense account are considered among the temporary accounts, the purpose of opening it is to determine the net income of the company during a specific time period. At the end of the year, these accounts are closed in a special account called income summary account to becomes their balance zero, so that the expenses that have debit balance are closed by making them credit, and the revenues account that have credit balance are closed by making it debit, as follows:

Expenses Closing Entry

Credit	Debit	Description
	xxx	income summary A/C
xxx		To administrative and general expenses A/C
xxx		To selling and marketing expenses A/C
xxx		To other expenses and losses A/C
		Closing the expenses and other losses account

Revenue closing entry

Credit	Debit	Description
	xxx	revenue A/C
	xxx	other revenues and profits A/C
xxx		To income summary A/C
		Closing the other revenue and profits account

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After the income result is identified, whether profit or loss, then this result is used to perceive the changes that occurred in the owner's equity of the company's owners during the fiscal period by preparing the statement of changes in owner's equity as will be explained in the next lesson.