Basic Income Statement Template

How to Prepare an Income Statement?

Here is how you can compose a simple Income Statement:

1. There is no uniform Income Statement format - every company determines which financial details are the most significant and how often they are collected, grouped, and scrutinized to see the bigger picture. However, a common-size Income Statement does not exceed three or four pages - your intention should be to include only the final figures instead of putting all your financial information into one file. So, it is recommended to create a short statement with references to other documentation also kept in the internal records of the company.
2. Draft a table to reflect the main financial data of the business. For instance, the first row of the statement will contain the sales revenue, the second will record the operating expenses of the entity, the third will compute the additional income of the company if it exists, and the fourth will state the net income of the business.
3. Start with calculating the sales revenue - all the net sales and cost of sold products to find out the gross profit. Whether you have received the cash or not since clients may often delay their payments, you should indicate all the revenue you have earned during the reporting period. Find out the cost of sold goods - add the value of materials, labor, and production you have utilized to create your goods. The difference between the revenue and the cost of goods will reflect the gross profit.
4. Enter the expenses of the entity - they often consist of advertising costs, insurance, salaries, equipment, supplies, utilities, and rent. Note that the labor would already be included in the cost of goods. When adding all the expenses, you should decide which ones can be decreased.
5. Compute additional gains of the organization - for instance, you may have sold stocks during the reporting period or earned money from interest if you invest your money properly. On the other hand, the company may have lost money as well - you may have invested poorly, lent funds, or spent money on legal proceedings.
6. Finish the Income Statement by calculating the net income. You have to add the gross profit from the first row to the variable gains of the business to discover the total profit of the company. To learn the total amount of expenses, you need to add the operating expenses to the losses from the previous row of the form. Only the net income remains - to compute it, subtract the expenses from the profit.

Why Is an Income Statement Important?

Create and update an Income Statement as soon and as often as you can - not only the company will be prepared to follow the particulars of the profit or loss and measure the business activity of the past looking at the recent data, it will also let the finance department see how the organization operates compared to similar companies that work in the particular industry or field. Once you categorize all your expenses and revenue, you will be able to see how different departments are performing over the course of the month or year and consider better investment if the organization makes extra money not required to cover fixed or variable costs at the moment.

A properly drafted Income Statement will indicate which expenses of the organization are getting too overwhelming for the business so that it is possible to manage unnecessary costs. Additionally, the comparison of results over months, quarters, or years will help you see your own growth in revenue and make plans for the future.

Related Forms and Topics:

• Net-Worth Statement;
• Financial Statement;
• Budget Templates.