To prepare an income statement, you must first generate a trial balance report, then calculate revenue, determine the cost of goods sold, calculate gross margin, including operating expenses, calculate income, include income taxes, calculate net income, and finally finalize your income statement with company information and the reporting period. Using a free invoice statement template will save you time when you don’t have the resources to create your own. For the purpose of preparing an income statement, small businesses must examine and document all of their income, expenditures, and gains or losses over a specified time period.

Profit and loss statements, which summarize a company’s monthly, quarterly, or annual revenue after deducting expenses and gains, provide insight into the health of your business. An income statement, formerly known as a profit-and-loss statement, typically includes revenue or sales, cost of goods sold, expenses, gross profits, taxes, net earnings, and earnings before taxes. In order to get a complete picture of your company’s financial health, you need the income statement. Comparing results to the current period’s plan helps business owners, managers, and financiers adjust for better business performance.

5+ Income Statement Format Samples

1. Income Statement Format Example

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2. Sample Income Financial Statements

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3. Income Statement for a Small Business

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4. Sample Construction Income Statement

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5.  Multiple Step Income Statement

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6. Notes to the Income Statement

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Writing an Income Statement

  1. Choose a reporting period
    First and foremost, you must decide on a reporting period before you can begin putting together an income statement. The most common options for businesses are annual, quarterly, and monthly income statements. For publicly traded companies, financial statements must be prepared quarterly and annually, but for small businesses, these reporting requirements are not in place. Using your monthly income statements, you can see how your revenue and expenditures have changed over time. Your company’s efficiency and profitability can be improved by using this information.
  2. Generate a trial balance report
    To create an income statement for your business, you’ll need to print a standard trial balance report. The trial balance can easily be generated by your cloud-based accounting software. Trial balance reports are internal documents that list the final balances of each account in the general ledger at the end of a specific time period. An important part of making a financial statement is making balance sheets, which are used to gather data for account balances. There are all the end-of-period figures needed for an income statement in this tool.
  3. Calculate your revenue
    The next step is to determine how much money your company made during the reporting period. You’re still entitled to all of the money you earned during the reporting period, even if you haven’t yet received it all. Subtract the total amount from the total number of revenue line items in your trial balance report.
  4. Know the cost of the goods sold
    Your cost of goods sold includes all of your direct labor, materials, and overhead costs, as well as all of your profit. The total cost of goods sold should be listed directly below the revenue line item on the income statement’s trial balance report.
  5. Calculate the gross margin
    Subtract the total revenue from the total cost of goods sold on your income statement. As a result of this calculation of gross margins, your net profit will be determined.
  6. Also include the operating expenses
    Add up all of your operating expenses from your trial balance report. Make a second pass over each line of expense to ensure that your totals are accurate. As an expense category, list all of your selling and administrative costs. It’s directly below the gross profit margin.
  7. Calculate your income including your income tax
    Total selling and administrative expenses can be reduced by removing the gross margin. The amount of money you have available before taxes can be found out this way. At the very bottom of your income statement, you should include this amount. Divide your pre-tax income by the state’s tax rate to arrive at your tax liability. This should be deducted from the company’s pre-tax earnings on the income statement.
  8. Calculate your net income
    Your company’s net income can be determined by subtracting the tax from the pre-tax income. However, the final line item of your income statement has a different number. An overall view of your company’s performance and profitability will be provided by this method.
  9. Finalize your income statement
    To complete your income statement, add a header to the report that identifies it as an income statement. Make sure to include your company’s name and financial reporting period. With all the information you’ve gathered, you’ve now created an accurate income statement. Your business will benefit from having a better understanding of income statement definition as a result.

FAQs

Why is an income statement useful in small businesses?

A common misconception among small business owners is the notion that they don’t need to worry about their income statement because they already know how much money they have on hand and how much they’ve spent. They are also aware of their tax obligations. If you’re looking to cut costs or expand into new markets, the income statement is your best friend. It can also help you manage your company’s cash flow, which is vital to its survival.

What is the difference between a balance sheet and an income statement?

The income statement is a financial statement that summarizes a company’s overall financial performance, or the amount of money it generates. A balance sheet is a tool used to assess a company’s ability to meet its financial obligations in terms of available liquid assets.

When looking for more samples and formats, take a look at the business income statement samples and templates provided in the article.

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