This statement tells you whether or not you've made a profit over a given period of time . The formula: Revenue - Expenses = Profit . Expenses can be broken down into two buckets. Costs of goods sold (cost related to revenue) . Any expenses related directed to revenue:. Cost of product, either purchased now or pulled from inventory . For services, employee cost (hours directly booked to a project) . Overhead expenses (cost required to run the business, not not directly related to revenue) . The income statement helps you:. Identify how much revenue you're bringing in. Understand if you're making money on your product. Identify if your fixed or overhead costs are too high. Itemize your costs to make better decisions