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Income statements are something that you'll come across over and over in college and in your business career, so it's an important thing to know. Knowing what an income statement template looks like is the first key to understanding income statements. There are a few main concepts that you need to be familiar with to fully understand income statements and what they mean.

The first thing you need to know in order to format an income statement is revenues. Revenues are the income generated from the primary business activities of a business. If you have a flower shop, then the money your earn from flower sales is revenue.

Gains are something else that a lot of people get confused with revenues. A gain would be if you sold some old shears from your flower shop so that you could buy some new ones. You made money from the sale, but it wasn't from selling flowers, so it's a gain and not revenue.

The next thing you need to understand is expenses. Expenses are like revenues because they are the costs that you incur in running your business. So again, if you sell flowers, the money you spend on purchasing your flowers is an expense.

The next concept you should know is a loss. Losses happen when your business loses money from a transaction that isn't from your primary business function. If you happen to have lost money when you sold your old shears, that is a loss, not an expense.

The basic equation of any income statement is revenues minus expenses equal net income. When you understand this simple equation, you'll be able to list the accounts in the right order.

The last thing you need to know about income statements is that they cover a time period, such as a year or quarter.

Understanding how to use an income statement template will help you in your education and career.