The Meaning of Income

A profit-oriented business tries to make a profit, while a non-profit organisation tries to operate so that it breaks even during an accounting period. In either case, success or failure is reflected by changes in the equity section of the balance sheet. If a business operates profitably during an accounting period, its equity increases by the amount of the profit. If a non-profit organisation breaks even, its equity remains unchanged.

However, the change in equity on the balance sheet does not tell anything about why operations during an accounting period were or were not profitable. You use the income statement for this purpose, as it summarises the changes in equity that occurred during an accounting period due to the operating activities during that period.

The income statement reports for a period of time, such as a month or a year. The balance sheet reports the entity's financial condition as of one moment in time.