Income statements are created using two primary methods to account for income. The cash basis of accounting only counts cash when it's received by the company, while the accrual basis concept counts accounts receivable, giving a slightly more accurate picture of the income of the company at the time of the statement’s release. Other than that slight difference, the methods of creating an income statement are the same through both. Either way, the statement shows income, subtracts expenses and ends with a net income amount to show profit or loss for the accounting period.
Start Accrual Based Income Statement
Write out the heading for the income statement to notify readers of the time period that the statement covers. Place the heading on the first two lines of the spreadsheet, with the first line reading, “Income Statement” followed by the name of the business. Fill out the second line giving the date of the end of the coverage period for the statement — for example, “Period Ending December 31, 2019.”
Enter Income Information
Skip a line then open the first section of the income statement with the word “Income” placed to the far left. Place the income amount for the year in a column to the right on the line, unless you wish to break down the income into multiple income types — for example, cash and accounts receivable. If you do, then go down a line and indent slightly, then place the income group name on the line with the amount of income in that grouping in a column to the right. Use your income reports for the year to determine income amounts and types.
Underline the last income group amount, and on the next line, place the words “Total income” in the far left. Add all of the income groups together and place this total income amount in the column beneath the underlined amount.
Fill in the COGS
Move down another line and write "Less cost of goods sold” in the far left under "Total income." Put the total cost of goods sold during the income statement period under the income amount in the column on the right.
Underline the amount and subtract the cost of goods sold from the total income to calculate the company’s gross profits. Place the result in the same column beneath the underlined amount. In the far left on that same line, under "Cost of goods sold," write “Gross profit”.
List Operating Expenses and Income
Write “Less operating expenses” in the far left on the next line. List each expense type beneath this line, slightly indented from the left of the page, add a small space after each and add the amounts. Expenses include such costs as rent, worker’s pay and office expense. Underline the last expense; under that, place the total along with writing “Total operating expenses” in the column to the far left.
Begin the next line by labeling it “Operating income”. Calculate the operating income by subtracting the total operating expenses from the gross profit. List the result in the right column.
Account for Interest Expense
Move down a line. Label the line “Less interest expense” in the far left and place interest expenses for the statement period in the column on the right beneath the operating income. Underline the amount of interest expenses.
Find Net Income Before Taxes
Move down another line and label this entry, "Net income before income taxes.” Subtract interest expenses from operating income, and post the result in the far right column.
Get Final Net Income
Begin the next line with the label “Less income taxes,” and then place any income tax amounts in the far right column. Underline the amount.
Write “Net income” on the next line down, and subtract the listed income tax from net income before taxes. Place this number in the far right column under the underlined income tax amount to complete the accrual basis income statement.
Larry Simmons is a freelance writer and expert in the fusion of computer technology and business. He has a B.S. in economics, an M.S. in information systems, an M.S. in communications technology, as well as significant work towards an M.B.A. in finance. He's published several hundred articles with Demand Studios.