A Simple Guide to Create Your Income Statement in Business

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To create an income statement, small firms must evaluate and record their sales, costs, and profits or losses for a specific reporting period. 

One specific financial statement that firms produce with the balance sheet and cash flow statement is the income statement, sometimes known as a profit and loss (P&L) statement.

Assets, liabilities, and equity are all summarized in a company’s balance sheet.

Financial records, called cash flow statements, show how much money a firm has made and spent.

Income statements outline a company’s profit during a certain reporting period and the costs it expended to obtain that income.

You may learn how to create an income statement by reviewing these topics:

WAYS TO WRITE YOUR INCOME STATEMENT

You must prepare a performance statement and other financial documents to determine how much revenue your company has produced. Follow these accounting procedures to create an income statement and report the earnings your small firm is making:

  • Decide on a reporting period.

Selecting the reporting period for your report is the first step in making an income statement. Typically, businesses decide whether to disclose their income statement annually, quarterly, or monthly. 

  •  Produce a trial balance report.

You must print out a typical trial balance report in order to generate your company’s income statement. Your cloud-based accounting software will make it simple for you to produce the trial balance. 

  • Determine Your Income

The overall sales revenue for your company’s reporting period must then be determined. Therefore,  if you have yet to receive all of the payments for your services rendered within the reporting period, your revenue includes all the money. 

  • Calculate the cost of the goods sold

The direct labor, materials, and overhead costs you spend to supply your goods or services are included in the price of goods sold. The entire cost of goods sold should be included on the income statement just beneath the line item for revenue. Add up each line item’s price of goods sold on your trial balance report.

  • Make a gross margin calculation.

The revenue total on your income statement should be subtracted from the cost of goods sold total. Your gross margin, or the total revenue you made from the sale of your goods and services, will be determined by this computation.

  • Determine Your Income

The gross margin is calculated as the selling and administrative costs combined. You will receive the pre-tax income amount as a result. At the bottom of the revenue statement, enter the sum.

  • Add income taxes in

Divide your pre-tax income amount by the applicable state tax rate to determine your income tax. Then, under the amount for pre-tax income, include this in the income statement.

  • Determine Net Income

Your business’s net income is calculated by deducting income taxes from the total pre-tax revenue. Therefore, the last line item on your income statement is where you should enter the amount. This will give you a basic overview of your company’s performance and allow you to gauge its profitability.

FINAL OVERVIEW

An income statement, commonly referred to as the trade and P&L account or a revenue and expense summary, provides information about the operation of your company for a particular accounting period.

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