Income
Statements
An income statement, otherwise known
as a profit and loss statement, is a
summary of a companys profit or
loss during any one given period of
time, such as a month, three months,
or one year. The income statement
records all revenues for a business
during this given period, as well as
the operating expenses for the
business.
What are income
statements used for?
You use an
income statement to track revenues
and expenses so that you can
determine the operating performance
of your business over a period of
time. Small business owners use
these statements to find out what
areas of their business are over
budget or under budget. Specific
items that are causing unexpected
expenditures can be pinpointed, such
as phone, fax, mail, or supply
expenses. Income statements can also
track dramatic increases in product
returns or cost of goods sold as a
percentage of sales. They also can
be used to determine income tax
liability.
It is very important to format an
income statement so that it is
appropriate to the business being
conducted.
Income statements, along with
balance sheets, are the most basic
elements required by potential
lenders, such as banks, investors,
and vendors. They will use the
financial reporting contained
therein to determine credit limits.
1. Sales
The sales figure represents
the amount of revenue generated by
the business. The amount recorded
here is the total sales, less any
product returns or sales discounts.
2. Cost of goods
sold
This number represents the
costs directly associated with
making or acquiring your products.
Costs include materials purchased
from outside suppliers used in the
manufacture of your product, as well
as any internal expenses directly
expended in the manufacturing
process.
Gross profit
Gross profit
is derived by subtracting the
cost of goods sold from net
sales. It does not include any
operating expenses or income
taxes.
3. Operating
expenses
These are the daily expenses
incurred in the operation of your
business. In this sample, they are
divided into two categories:
selling, and general and
administrative expenses.
Sales salaries
These are
the salaries plus bonuses and
commissions paid to your sales
staff.
Collateral and promotions
Collateral
fees are expenses incurred in
the creation or purchase of
printed sales materials used by
your sales staff in marketing
and selling your product.
Promotion fees include any
product samples and giveaways
used to promote or sell your
product.
Advertising
These
represent all costs involved in
creating and placing print or
multi-media advertising.
Other sales costs
These
include any other costs
associated with selling your
product. They may include
travel, client meals, sales
meetings, equipment rental for
presentations, copying, or
miscellaneous printing costs.
Office
salaries
These are
the salaries of full- and
part-time office personnel.
Rent
These are
the fees incurred to rent or
lease office or industrial
space.
Utilities
These
include costs for heating, air
conditioning, electricity, phone
equipment rental, and phone
usage used in connection with
your business.
Depreciation
Depreciation
is an annual expense that takes
into account the loss in value
of equipment used in your
business. Examples of equipment
that may be subject to
depreciation includes copiers,
computers, printers, and fax
machines.
Other overhead costs
Expense
items that do not fall into
other categories or cannot be
clearly associated with a
particular product or function
are considered to be other
overhead costs. These types of
expenses may include insurance,
office supplies, or cleaning
services.
4. Total expenses
This is a tabulation of all
expenses incurred in running your
business, exclusive of taxes or
interest expense on interest income,
if any.
5. Net income
before taxes
This number represents the
amount of income earned by a
business prior to paying income
taxes. This figure is arrived at by
subtracting total operating expenses
from gross profit.
6. Taxes
This is the amount of income
taxes you owe to the federal
government and, if applicable, state
and local government taxes.
7. Net income
This is the amount of money
the business has earned after paying
income taxes. |
