Let's talk now about the income statement. Here's the example of the income statement taken from PepsiCo's annual report. We could pull up an income statement from just about any company. We'll see several things in common. The first is we'll find out how much revenue the company generated. The second thing we'll see is we'll find a list of expenses that the company incurred to generate those revenues. That list will differ depending on what type of company we're looking at. And then we should see that the company subtracted the expenses from the revenues and will tell us what its net income is, where net income is revenues minus expenses. If you've not seen an income statement before or if some of these terms are terms you haven't heard before, then again you're in the right place. Let's talk about the income statement in more detail. The income statement shows the results of operations, over a period of time. And remember the balance sheet showed us a financial position at different points in time and income statement shows us the results of operations over a period of time. So it's not cumulative like the balance sheet is from the inception of the company, is just accumulating transactions over a period time. It starts with revenues that the company has generated. Now what are revenues? Those are increases in owner's equity that result from selling products or services to the company's customers. So revenues serve to increase owners' equity. From revenues, we see expenses subtracted on the income statement. Well, what are expenses? Well you might expect, given what we said revenues were, that expenses are decreases in owners' equity from the costs that the company incurs to generate those revenues. Some examples would be cost of goods sold. So, if a company is in the business of selling products to customers, the cost of goods sold will tell us the cost of the products that were sold to the customers. Or perhaps, salary expense, the cost that we have incurred to pay the people that work for us. Or, another example is depreciation expense. Which is the cost of using buildings and equipment during the current period of the income statement to generate revenues during that period. If we subtract the expenses from the revenues we're left with net earnings or sometimes very frequently in fact, this is called net income, or net profit. These terms are used interchangeably. Net earnings of course would be the increase in owner's equity from the company's operating activities or more cleverly described as revenues minus expenses.