How to Prepare an Income Statement

How to Prepare an Income Statement

One of the secrets behind every business’ success is financial literacy. Some who have little to average ideas about it often times fall into traps and results to a great amount of loss. While others who trained and learned to master it, always find ways to excel and outrace the others.

A part of being financially literate is being able to prepare financial statements. These are documents that present a factual and informative data about a companies financial status. And one of the elements in a financial statement is the income statement. It focuses more on the company’s revenues and expenses.

 How to Create an Income Statement for Your Business

When you are running a business, you need to be able to create a strategic plan on how to maintain it. When creating an income statement, you also need to formulate methods. There is no standard structure because it varies upon the complexity of the business analysis, however, there are only two elements that your income statement or profit and loss statement should contain.

  • Acquisitions and Earnings
    Write down your acquisitions from primary and secondary activities as well as earnings from assets and investments.
  • Expenses and Decrements
    This includes your expenses involved on your company’s main activities like production of goods as well as losses on investments or lawsuits.

How to Read an Income Statement

If you are reading a very complex statement example in pdf of income, what you need to do is to try to look for its obvious aspects like the profits and losses. In addition to that, you need to be able to identify the essential parts of it so you will be able to interpret it and probably make one for your business plan.

There are only a few elements that you have to take note. The expense amount and all its sub-topics, the net amount and all related income factors, and lastly, the period it covers. Being able to determine these components will help you understand the income statement.

 What Are the Sections of the Income Statement?

As what we have previously discussed, there are certain elements that make up an income statement. These factors are also shared or found in other statement categories like the financial statement, cash flow statement, and most of all need statements.

  • Body. This is where you will find the expense materials and their respective amounts as well as the income or revenues.
  • Summary. This is a short recap of the above stated data as well as any further recommendations.

Uses of Income Statement

Not knowing your company’s financial situation and leaving it all to luck will soon put you in a problematic situation. One of the things that could aid you to avoid this is to always create financial reports or income statements. One of the uses of an income statement is it provides you an overview of your performance of the simple business plan.

With each project report, you can gauge whether you are doing good or bad and for you to think of solutions of the situation is the latter. In addition to that, writing income statements periodically allows you to compare the results of each cycle and identify possible discrepancies.