How To Create an Income Statement

Businesses are required to create income statements for taxes and other purposes. The income statement is useful for the business owners who want to assess the growth of their company and to see how much profit or debt the company has made within a quarter or an entire fiscal year. The income statement is also used by offices, such as the IRS, to assess how a company will be taxed. Here’s how to make your income statement.

  1. Heading section. The heading is one of the basic parts of the income statement. In the heading, you will place all of the important details of your business, such as the business’ name, the logo, the name of the document, and the time frame for the income statement. You can create an income statement for a month, or you can create one for an entire year. Most business will also create a quarterly income statement to assess the growth of the company at key points in the year.
  2. Revenue section. Next, create the revenue section where you will add the amount of money your company has earned, and where your company has earned the money. Some of the common revenue items are the cash sales, which is the products and services that have been paid for in cash. There are also credit sales, which are paid for in credit, and fees that are the charges for services that your company renders. You can make your revenue section as detailed as you want, such as by categorizing each type of sale according to product or service. Or, you can simply lump all of the money into a single category. More detailed income statements, however, will give you insight on what’s selling in your company and what is not.
  3. Expenses section. Next, work on the expenses that the company has incurred within the time frame covered by the income statement. Some of the common expenses that the company will have are the salary that is paid to the employees, the rent paid for the office, and utility bills such as electricity, water, internet, and heating.  Other expenses that most business have today are insurance for the company, maintenance costs, and supplies costs. Again, you can be detailed in outlining the expenses section, or you can simply lump the expenses into broad categories.  Of course, a detailed expense section will allow you to check which costs to the company can be cut down.
  4. Combining the sections. Once you have all of the figures put in paper, the next step is to add the totals. Add the total for all of the items in the revenue section, which will be the sum amount of money your company has made during the time frame covered. The sum of all of the expenses that your company has made will then be subtracted from the income.

If the company has a positive figure, this is called net income or the real profit for the company. If it is a negative figure, then the company has net loss, which is the amount of money that the company has lost.


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