An income statement sets out your company income versus expenses, to help calculate profit. You’ll sometimes see income statements called a profit and loss statement (P&L), statement of operations, or statement of earnings.
Income statements can be created to analyze and compare business performance over a month, a quarter or a year, and are an effective tool to review cash flow and predict future business performance.
Smart business owners use income statements alongside other key financial documents, like the balance sheet and cash flow statement, to check up on and improve the health of their businesses.
Download your free simple income statement in Excel. Customize and plug in your business numbers, to make analyzing your company performance easy.
Use the free template to create your multiple step income statement in Excel, and get an in depth report of your net business profit or loss.
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The single step income statement formula is:
Total Revenues - Total Expenses = Net Income
An income statement compares company revenue against expenses to determine the net income of the business.
Subtract operating expenses from business income to see your net profit or loss. If revenues are higher than total business expenses, you’re making a profit. If your business expenses over the period being examined were higher than your income, the company has made a loss.
This calculation is useful for business owners and investors as it shows the net profitability of a business, and how efficient a company is at generating net income.
Income statements give a snapshot view of business performance - create a monthly, quarterly or annual statement, which you can analyze and compare to performance over the same period in previous years.
Both the income statement and balance sheet are important financial statements - but each has a different function for business owners and investors.
A balance sheet gives a point in time view of a company's assets and liabilities, while the income statement details income and expenses over an extended period of time (usually one year). A balance sheet helps determine a company's current financial situation and make important financial decisions. The income statement can be run at any time of the fiscal year to determine profitability and compare one period of time to another to show growth.
An income statement shows a company’s income versus expenses over a given period. It shows whether the company is making profit or is in loss, by subtracting total expenses from total income.
When you build your income statement you’ll need to customize the line items to suit your business. Here are some of the expenses to think about:
Cost of Goods Sold (COGS) - the price you pay your suppliers for raw materials, and direct labour, for example.
Selling, General and Administrative Expenses (SG&A) - this covers a wide range of items including business property rental, transportation, employee salaries, business rates and more.
Depreciation and amortization - known as non-cash expenses, depreciation reflects the cost of capital assets spread over time, while amortization is about the loss of value of intangible assets, like a patent for example.
Research & Development (R&D)- depending on your business type, you may need to add in any extra costs incurred for researching and developing new products you plan to launch.
A multiple step income statement is a more complex income statement which splits out different types of revenue and expense, allowing detailed analysis of the business. Operating revenues and expenses are segregated from nonoperating income and costs, for example. This document will also generate a gross profit figure for your business.
A contribution margin income statement is used to generate contribution margin, as well as overall net profit.
The company revenue is added to the statement, with fixed and variable expenses being split out, which allows this income statement format to show contribution margin alongside net business income.
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