How to make an income statement?

31 января 2020 by Forex Broker personal-accounting.org

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Many businesses are required to produce a document, such as an income statement. This source assumes the inclusion of figures that reflect how effectively the company is operating — in terms of revenue generation and business profitability. It is quite easy to prepare the income statement. 

Income statement preparation in few steps

Some bookkeepers often ask, “What goes on an income statement?”. The income statement includes the following main items: profit (loss) as the results of the sale of goods or services, operating revenue, and expenses, income, and expenses incurred as a result of non-operating activities, expenses of the organization for the production of products. 

Choose a reporting period

The income statement can be prepared for any period of time, but it is usually prepared for a year, which is necessary for tax purposes. It is necessary to prepare an income statement in the year following the reporting year. 

Create a trial balance report

or each open registration account, summarize your debits and credits for the reporting period for which you use the trial balance. Write down the totals for each account in the corresponding column. If the debit and credit are not equal, there is an error in the General Ledger accounts. Running a trial balance on a regular basis, at least monthly, helps you quickly and easily identify any problems and fix them as soon as they occur. The preparation of the trial balance must be linked to the billing cycle of the company.

Find out revenue amount

Bookkeepers often ask, “How to make an income statement and find the revenue amount?”. An organization’s revenue is the amount of revenue generated from the sale of goods, the provision of services, or the performance of work by the reporting firm. 

Costs of goods sold determination 

In general, the cost of goods sold is understood as the total of all costs that are associated with the production and sale of products, and these costs are represented in monetary terms. In practice, there are cases when not all products that were produced during the reporting period are immediately sold in this period of time. In this case, the cost of goods sold is calculated as a total of costs relative to the products that were sold in this reporting period.

Gross margin calculation

Afterward, the gross profit (or loss) is recorded when you prepare an income statement. The corresponding value is calculated easily – like the difference between the items discussed in the previous two paragraphs, revenue and COGS.

Operating expenses

Operating expenses are divided into fixed and variable expenses. The total amount of operating expenses is calculated as the sum of these expenses. Property tax

Calculate income

To calculate the net income when you prepare an income statement, all revenue items in the report are added together, and all-expense items are subtracted from them.

The data is shown for the period as a cumulative total. This means that the report for the first quarter will contain total data on revenue and expenses for the entire first quarter. 

Income tax calculation

The statement can also show before and after-tax income for the reporting period for which the organization makes the document under consideration. Now, you know how to prepare an income statement.