An Income Statement also known as statement of loss and expense is one of the major financial statements necessary to prepare for business organizations. This statement encompasses revenue, expenses and net results derived at the end of a given period like at the end of month or fiscal quarter. It will help you to take important decisions for the benefits of organization. It serves as a business evaluation tool required by accountant to prepare a financial report for a specific period of time. This will help you to get gross business sales, costs of business and finally the net income. You can design an income statement after a certain period of time and this time frame will be based on the volume of your business. It is a significant document therefore it is necessary to design it with care without any potential error.
Here is preview of this free Income Statement Template created using MS Excel 2007,
Easy Tips to Design Income Statement
An accurate income statement requires proper stetting of revenue items apart from expenses. You have to prepare this section with the help of transaction data to uncover everything related to sales, investment gains and vendor rebates. Usually these items are classified under “Total Revenue” section because these items bring money in the corporate treasury.
- Add your sales for the specific period for which you want to create an income statement. Write sales or revenue on the first line of the income statement. If you are running business on the cash bases then you have to get the sales records from the cash registers.
- Cash-based method is a preferred method to record your sales and requires timely record keeping right after sale. If you are using accrual method then you have to record sales even without receiving any money from your customers. You have to make an entry in accounts receivable.
- You have to calculate the cost of goods sold of the company to represent cost of raw materials and production of the finished goods. Cost of goods sold is largest cost component of the income statement of many companies. The formula of cost of goods sold will be:
Cost of Goods Sold = Opening Merchandise Inventory + Purchases of Merchandise – Ending inventory.
- It is crucial to keep proper record of inventory to record cost of goods sold.
- Subtract cost of goods sold from sales and you will get gross profit of your organization. For instance, if the sales were $200,000 for the month and the cost of goods sold was $80,000 then the gross profit of the company will be $120,000.
- You have to collect all operating expenses for the specific period. Operating expenses include rent, utility bills, depreciation and telephone expenses. These expenses are related to the regular operations of the business. Some companies prefer to take these expenses under a specific category called “General and Administrative Expenses”. In order to get a quick visual look you have to draw a line under these expenses.
- You have to subtract operative expenses from the gross profit of the company to get operating profit of the organization. For instance, if the operating expenses are $25,000 then according to previous example the operating profit will be $95,000.
- Apply the tax rate on the operating profit such as if the tax rate of the company is 21 percent then multiply the tax rate with operating profit. For instance, $95,000 x 21/100 is equal to 19,950.
- Now subtract the tax amount from operating profit to get the net income for the period and according to current example the net income is $75,750.
Here is download link for this Income Statement Template,
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