The Income Statement is a representation of the net results of the small businesses operations over a specified period of time, usually a month, a quarter or for a full financial year.
The statement is generally compiled on a double entry bookkeeping or accrual accounting basis, so that the revenues reported are matched with the expenditure incurred to generate the sales.
Because the Income statement reports on the profit or loss for the period it is sometimes called a Profit and Loss Statement.
The amount of profit or loss reported in the statement comprises of net revenues less expenses for the period. The Profit and Loss or Income Statement reports on four types of activities:
- the cost of producing or manufacturing the goods or services sold by the business,
- the expenses incurred to market, distribute the product or service to the customer and the administrative costs of running the business,
- the financing costs of the business, for example interest or dividend costs, and of course,
- the income earned by the small business during the reporting period.
Basic Format of an Income Statement
The usual layout for an Income Statement is:
Sales or Income Less Cost of Goods Sold
Equals Gross Profit or LossLess Operating Expenses
Less Financing Costs
Less Income Tax
Equals Net Profit or Loss
...and it will look something like this:
Related articles you may be interested in reading: