Income statement is a vital part of financial statements of an organization because it helps you to evaluate how much money is made by an organizations and how much loss is incurred during a specific period of time. Income statement typically deals with revenues and expenses during a whole accounting period. Typically two formats are followed to design income statement including single step income statement and multi-step income statement. Purpose of both formats is directly connected to the calculation of total income. Perfectly prepared income statement helps you to calculate total income and expenditure of the company for the future periods. With the help of income statement, one can allocate sufficient funds for the activities of business and pare back needless expenses. Here is preview of this Income Statement Template that I am going to share with you,
Guidelines to Design Income Statement
Income statement should contain detailed information about revenue and expenditure of your business in order to determine the efficiency of your management and operating system. Today I will share some important guidelines for preparing income statement:
Calculate Total Sales
Calculate total sales for the period for which you want to prepare your income statement. Sales or revenue will be the first item of the income statement. If you are running cash based business then you can get your sales record from cash registers because cash method is preferred method to record sales of this type of business.
If you are using accrual method then you have to record a sale regardless of this either you have received money from your customer or not. In such kind of business you have to make an entry in account receivable to record a sale.
Calculate Cost of Goods Sold
You have to calculate cost of goods sold in order to represent the total cost of raw materials and production of finished goods. Cost of goods sold also known as CGS is largest cost component of the income statement. In order to calculate CGS you have to use following formula:
Cost of Goods Sold = Opening Inventory + Purchases – Ending Inventory
If you want to get accurate amount of cost of goods sold then it is necessary to keep proper record of inventory.
Calculate Gross Profit
It is time to get Gross Profit by subtracting cost of goods sold from sales. For instance, if your sales were $200,000 for the month and cost of goods sold was $75,000 then the gross profit of the company will be $125,000.
General and Administrative Expenses
Now add up all operating expenses such as rent, utility bills, depreciation and telephone expenses for the period. These expenses are linked with daily operations of the business and lots of organizations lump these items under General and Administrative Expenses or G&A.
You can also show each expense separately instead of lumping them under G&A. This will help you to get quick visualization of all expenses incurred during a certain period of time.
Subtract Operating Expenses from Gross Profit
Now you have to subtract all operating expenses from your gross profit of the company and as a result you will get operating profit of your company. For instance, if the total operating expenses are $30,000 then as per previous example the operating profit will be $95,000.
Apply Tax Rate on Operating Profit
After getting operating profit of the company now it is time to apply tax rate on it. For instance, if the tax rate of your company is 40 percent then after multiplying it with operating profit you will get tax amount. For instance, as per last example tax amount is $38,000 that is derived by multiplying with 40 percent or 0.4 x $95,000.
Calculate Net Income
Subtract tax amount from the operating profit and you will get net income for the period. For instance, $95,000 – $38,000 = $57,000. Finally, $57,000 is your net income.
Here is download link,