An income statement shows all income and expense accounts over a period of time. It is also referred to as a profit and loss statement (or P & L), From an income statement you can determine how much money your business made after all expenses are accounted for, i.e., how much profit your made.
Here is an Example of an Income Statement. The basic format is that all the income sources are listed and totaled on the top of the statement, and all the expenses are listed and totaled next. The total of the expenses is subtracted from the total of the income to give the profit over that time period.
Income is usually broken down by Gross Sales from which Returns and Allowances are subtracted to give Net Sales. Cost of Goods sold is estimated by adding the inventory in stock at the beginning of the period to the purchases during the period, less the inventory at the end of the period. Subtracting Cost of Goods Sold from Net Sales gives you the Profit from Sales, also known as the margin.
The format of an income statement will vary by the type of business you run. For instance, service businesses may have a category Fees Collected instead of Cost of Goods Sold. One also needs to consider Work-In-Progress that is not completed. The Sample Chart of Accounts gives some examples of the type of categories on might use in an income statement. Many financial software packages have income statements included that you can customize to your particular business.
The precise format of your income statement is not as critical as is that the statement provides information that can help you see what is happening financially in your business. This statement needs to be completed at least once annually, if not more frequently, so that you can be aware of problems and correct them as they arise.
