You want to know how to make an income statement? This time we will explain how to do it step by step, but first we are going to define what an income statement is. It is one of the most relevant financial statements, which tracks income and expenses in order to determine the operating performance of a company.
Companies to know how to do a basic income statement, they have to analyze their income, expenses, gains and losses, to show the gains they made during a given reporting period and the amount of expenses incurred while obtaining the income.
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In this article you will find:
How to make an income statement step by step
The income statement of a company
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1. Select a specific reporting period
Most companies choose to report their income statement annually, quarterly or monthly, and those that are listed on the stock market must do so quarterly and annually. During the first step, you must select the time period that the report will represent.
The formation of monthly income statements, helps to specify what are the earnings and expenses through time, which would facilitate business decision making and thus the company can be more profitable and efficient.
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2. Provide a trial balance report
To generate an income statement for the company, it is necessary to print a balance report of standard test, which can be easily performed by means of accounting software based on the cloud.
These trial balance reports are internal documents that classify the ending balance of all accounts within the book. accounting for a specific reporting period and also provides the final balance figures necessary to carry out the statement of results.
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3. Income calculation
In this step, you have to perform the calculation of the company's total sales revenue for the reporting period. This income must comprise the total amount of money earned during the reporting period, even if not all payments have been made.
You must add all the income items that belong to the trial balance and incorporate the total amount within the income item of the income statement.
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4. Specify the value of the goods sold
The value of the goods sold includes the materials, direct labor and all the general expenses that were needed for the elaboration of the goods. To determine this, all the elements that generated cost of goods sold within the income statement must be added at the bottom of the income elements.
5. Gross margin calculation
The total cost of goods sold must be subtracted from all income within the income statement. This calculation operation will provide the gross margin that was obtained from the profit from the sales of the goods.
6. Incorporate operating expenses
To include operating expenses, all these expenses are added in a classified manner in the trial balance report, then the total amount must be entered within the income statement, which will be the item of sales and administrative expenses that is directly located in the part below the margin stupid.
7. Income calculation
In this step, all the selling and administrative expenses that belong to the gross margin are subtracted, this will give the total of income previously from taxes, the amount obtained should be placed in the lower part of the statement of results.
8. Incorporate income taxes
To perform this income tax calculation, you have to multiply the applicable state tax rate by the amount of income earned before taxes. This should be included on the income statement, at the bottom of the amount of income before taxes.
9. Calculation of net income
To be able to specify the net income of the company, it is necessary to subtract the income tax from the amount of income before taxes and then enter the amount on the final line of the statement of results.
10. Complete the income statement
To conclude, a heading should be placed in the report that can identify it as a income statement of a company, only the name and other details of the same and the period of time of the report that was covered within this financial statement should be added.
An income statement is an important source of information that includes key aspects of the profitability of a company. To know how to make an income statement, the net income must be calculated through the subtraction of expenses and total income and in this way the total profitability of the company will be obtained. We would like you to visit our website.
Sources and references:
- Lyon. S (2021, January) Income Statement
- (2021) How to Create an Income Statement for Your Business
- Muller. I. (January 2021) Income statement - Definition, Importance and Example
