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How profitable is your business? What’s the current financial strength of your company? The only way to really find out is through income statement preparation.
Your company’s income statement is like your business report card. It presents the important financial aspects of your organisation that you can’t see immediately on the surface.
In this comprehensive guide, learn the ins and outs of income statement preparation and why this report is crucial to running your business.
An income statement is a financial report that records your company’s profitability over a given reporting period. It shows your profit and loss in a financial year, so interested parties can evaluate how your business is performing.
It is also often called ‘statement of earnings’ or ‘net income statement.’ Along with the cash flow statement and the balance sheet, an income statement is one of the most important reports in financial accounting.
An income statement makes you aware of your company’s current financial footing. With an accurate presentation of figures, you can make quick and wise decisions about your company’s expenditures.
Operating a business means you have to bear various forms of business taxes and follow tax regulations. Income statements provide you with the necessary financial data to calculate your tax liability.
Our team will set you up with the Xero cloud-based software and help you manage the platform so your data stays current without any hassle on your end
The purpose of an income statement is to provide financial data and information to creditors and investors. They use the financial reporting contained there to determine whether your company is profitable during a financial year.
When a business prepares an income statement for internal use only, you can refer to it as a ‘profit and loss’ statement. You can use it to track expenses and revenues to determine your company’s operating performance over a time period. Many small business owners also invest in income statement preparation to discover areas of their business that are over budget or under budget.
Your company’s revenue from sales or services is displayed at the very top of the income statement. This is the total amount you earned in a financial year. You can have multiple revenue streams that add to a total revenue line.
The total amount you spent to buy or make the goods and products sold within a period of time. Direct costs can include parts, materials, labor and an allocation of other expenses.
Amount of money your business earned before operating costs. This is calculated by subtracting Cost of goods sold from revenue or sales.
Total amount spent on operating costs such as utilities, salaries, advertising and administrative fees.
Total amount spent on operating costs such as utilities, salaries, advertising and administrative fees.
This type of income statement presents the expenses, revenue and the loss or profit generated by a business with only one equation to calculate profits. A single-step income statement uses the equation:
Net Income = (Gains + Revenues) – (Losses + Expenses)
It offers a straightforward accounting of your business’ financial activity. When you’re still learning how to prepare an income statement, this is easier to understand and relatively easy to prepare.
A multi-step income statement presents the same information, but it uses multiple equations to determine your company’s net profit or income.
The three different accounting formulas include:
Net Income = Non-Operating Items + Operating Income
When you need income statement preparation services in Australia, look no further than Your Finance Department. We offer expert financial statement preparation services, including income statements. We also provide financial consulting services and guide you on how to prepare an income statement.
With over three years of industry experience, tap on the knowledge and skills of our team. For more information and enquiries about our income statement preparation services, contact us today.
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