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An income statement gives an overview of a company’s income and expenses. It is a type of financial statement used to evaluate the company’s performance in the short term. Since most other financial statements are prepared annually or biannually, an income statement is also created monthly or quarterly. An income statement is also called a profit and loss statement, earnings statement, or statement of operations.
An income statement helps managers and investors make decisions in the short term. It helps assess the company’s growth trajectory.
The income statement is primarily used for measuring profitability, not cash flow.
An Income Statement is prepared monthly and quarterly. Unlike other financial statements and reports, the income statement gives business profitability information on a monthly basis. A monthly report can help identify immediate threats and opportunities and a business can avoid nose dive.
Investors may also ask for income statements in addition to the balance sheet and other financial reports. The reason is the same as the income statement focuses more on the short term.
A forecast income statement is an essential part of a business plan. Along with cash flow statement and balance sheet, income statement makes the financial planning part of the business plan.
This income statement template for business plan can be used without any additional changes; download income statement template, populate it with forecast numbers and your income statement for business plan is ready.
There are two basic types of income statements, Single-step income statements, and multi-step income statements. Here is a short side-by-side comparison of the two. When you are unsure about it, use Single Step Income Statement.
We have prepared these three income statement templates. You can also download income statement excel format. You can also use the income statement template for business plan.
Basic Single Step Income Statement
Download single or simple income statement template in excel format here. Put in your business numbers in the templates and see how your business is doing!
Traditional Income Statement
Traditional income statement is easy to use. Download the traditional income statement template and make financial statement for your business.
Multi-step income statement
Multi Step Income Statement gives an in-depth analysis of your business. Download this free multi step income statement template to look closely into your business performance.
A single step income statement is prepared with simple accounting equation that subtracts ‘losses and expenses’ from ‘revenues and gains’. Whereas the multi step income statements also include the the expenses and revenues from non-operational resources and follows a three step approach to calculate net income. An example of income statement will include all the list items mentioned here.
|Single Step Income Statement||MutilStep Income Statement|
|Net Sales||Net Sales|
|Cost of Sales||Materials and Production|
|Gross Income||Marketing and Administrative|
|Selling, General and Administrative (SG&A)||Research and Development Expenses|
|Operating Income||Other Income and Expenses|
|Other Income and Expenses||Pretax Income|
|Pretax Income||Net Income|
|Net Income after tax||------------------|
In one line, the income statement formula is:
“ total revenues – total expanses= Net income”
An income statement gives a comparison and overview of the company’s revenue and expenses. It helps understand the business growth trajectory in the short term.
If your business’s revenues are greater than the expenses, your company is making a profit. Whereas, if your expenses are more than your revenues, your company needs to look closely into the income statement and take the necessary steps for making it profitable again.
The income statement displays the net profitability of a business. It serves as a tool for investors and owners and it shows the company’s profitability.
An income statement is a better financial report for checking the performance of a business in the short run.
For most businesses, the income statement items will be different. However, the structure stays the same. Most templates can be used for any industry after a few changes. You will find these list items on any income statement example.
We have provided simple income statement templates and you can use them as guidelines for preparing an income statement. Our templates are compatible with Microsoft Excel; you can download and use them for your business.
The following steps will be helpful for you in preparing an income statement.
1. Select a Reporting Period
An income report shows revenues and expenses for a certain time period. You can choose any time period from one month to many years.
Mostly income statement is created on a monthly, quarterly, bi-annually, or yearly basis. Most companies create monthly income statements to keep a close eye on their performance.
2. Prepare a Trial Balance Report
You will need to create a standard trial balance report for creating an income report. A trial balance report gives end balance numbers for each account which is necessary for the income statement. If you are using an accounting tool, you can easily prepare and print out the trial balance report in a few clicks.
3. Calculate Revenue
Next, you will need to calculate all the revenues your firm has earned in the selected time period. Revenues will include everything you have earned from selling your goods or services in the reporting period, whether you have received the payment or not.
4. Calculate Cost of Goods Sold
Cost of goods sold includes the labor cost, materials cost, and overhead costs you have made in offering your goods or services.
From your trial balance, add the ‘cost of goods sold items and put the number on the income statement below revenue line items.
5. Calculate Gross Margin
Subtract ‘cost of goods sold’ from ‘Revenues’ and you will have your Gross Margin number.
6. Include Operating Expenses
Take all the operating expenses line items from your trial balance and put the final number in ‘selling and administrative expanses’ in the income statement.
7. Calculate your Income
When you take out the ‘selling and administrative’ expanses from ‘Gross Income’, you will get your income before taxes.
8. Include Income Tax
Find your state’s tax rate, multiply it with your pretax income and you will get the income amount you will have to pay. The income tax number will go below the pretax income in the income statement.
Pro Tips: learn how to to calculate income tax with our income tax calculator.
9. Calculate Net Income
Take out the income tax from pretax income and you will get your net income. Your net income will give you an overview of your business performance and profitability.
10. Finalize the Income Statement
Add the ‘Income Statement’ in the header of the income statement report for easier identification. Your income statement is complete now.
In case you are using income statement template in a business plan, you will put the expected, forecast numbers in the template to prepare the income statement.
A Profit and loss statement (P&L statement) is also called an income statement. An income statement or P&L statement is the summary of revenues, expenses, cost of goods sold, administrative expenses, and taxes for a specific time period.
Income statement and balance sheet are not the same. Both of these reports give important information about the business; an income statement gives a profit and loss assessment of a business while balance sheets tell about the financial situation of a business at a certain point in time.
Income statement can be prepared for both cash and accrual-based accounting. However, the revenues and expenses calculation method will be different as we will only be recording the revenues received and expenses made.
Income Statement shows the current profitability of a business. It details the revenues and expenses of a business. The income statement can be negative if the expenses and costs are more than the total revenue.
An income statement includes the following expenses.
Cost of goods sold- the expenses you incur for the materials and labor.
Selling, General and Administrative Expanses-this head include all indirect expenses, advertising expenses, overhead expenses, rentals, etc.
Depreciation and Amortization- Depreciation shows the decrease in the value of tangible assets like machinery, automobiles, etc; amortization is the decrease in the value of intangible assets like patents and trademarks.
Research and Development-If your business has a research and development facility, you will need to add these costs to the income statement.
There are two basic types of income statements; single-step income statements and multistep income statements. A multistep income statement has more details and includes incomes and expenses.