Income statements are one of the key management tools in corporate accounting.
Expenses and income are systematically presented in the income statement,
providing transparency on the factors that have a significant impact on the annual results.
Together with balance sheet accounts, income statement accounts form the basis
for meaningful annual financial statements and tax profit determination
(see glossary entries for balance sheet account, balance sheet in Italy,
IRES – corporate income tax).
What is an income statement account?
An income statement account is an accounting account in which all transactions affecting income
for a specific period (usually the fiscal year) are recorded.
It therefore does not show what a company owns or owes (that is the task of the balance sheet accounts),
but rather what income it has generated and what expenses it has incurred to do so.
Examples of income statement accounts
Income statement accounts can be divided into income accounts and expense accounts.
Income accounts (examples):
- Revenue from the sale of goods or services
- Rental income, commissions, license and interest income
- Other operating income (e.g., subsidies)
Expense accounts (examples):
- Cost of goods sold, cost of materials
- Wages and salaries, social security contributions, TFR provisions
- Rent, leasing, energy, insurance
- Depreciation (see glossary entry for depreciation – ammortamento)
- Interest expense, bank charges
- Taxes and duties to be recorded as expenses
The sum of all expense and income accounts results in the operating result.
This, in turn, forms the basis for the tax assessment
(e.g., IRES, IRAP, IRPEF for sole proprietors).
Significance for entrepreneurs and HR managers
A sound understanding of income statements is an important skill for entrepreneurs,
managing directors, and HR managers, as it enables more precise control and evaluation
of operational processes.
- For entrepreneurs and managing directors
- it serves as a basis for assessing the profitability of individual business areas,
products, or projects,
- provides clarity on cost structures and supports the identification of optimization
and efficiency potential,
- and provides valuable insights into the factors that significantly drive operating results.
- For HR managers
- it places personnel costs in the overall financial context of the company,
- it highlights the budgetary impact of new hires, salary adjustments, and variable compensation models,
- it strengthens the ability to carry out strategic personnel planning based on reliable business indicators.
- For private individuals and freelancers
- it facilitates the structured recording of income and expenses,
- improves understanding of one's own tax situation (see glossary entries Tax return in Italy, Self-employment).
A solid understanding of income statements is therefore an essential component
of professional corporate management and decision-relevant control instruments.