It's important to list your revenue and expenses in the proper order on your income statement. The income statement, also known as a profit and loss statement, indicates what a company is worth. The statement adds all revenue and subtracts all expenses to give the owner a net profit or a net loss. The income statement can give the owner insight into her business' financial condition.
Items you will need
- Two- or four-column accounting worksheet
- Financial documents
Prepare the heading
Center the company’s name on the top line of the page. Beneath that, center the words “Income Statement.” Directly beneath “Income Statement,” center the words “For the ___ ending _.” The income statement is usually prepared for a specific time period such as a month, a quarter or a year. If you were preparing the income statement for the first quarter of 2008, the last line of your heading would read, “For the quarter ending March 31, 2008.”
The first item on your income statement will be net sales. The words are written in title capitals at the left margin. The total is recorded in the right-hand column.
Next list the cost of goods sold. The cost of goods sold is written in title caps at the left margin and is followed by a colon. Indent and write "Beginning inventory." The amount of beginning inventory is written in the left-hand worksheet column. Under beginning inventory, write "Merchandise purchases." The amount of merchandise purchases will be written in the left-hand column beneath the amount of beginning inventory. On the next line, write "Freight" or "Shipping expense." Record the amount of freight or shipping expense in the left-hand column.
List “Cost of Goods Available for Sale” on the line beneath “Freight” at the left margin. Put the total of cost of goods available for sale in the right-hand column. Indent and list “Less Ending inventory,” deducting the amount of inventory on hand at the end of the period. The amount of cost of goods available for sell less the ending inventory provides you with the cost of goods sold. At the left margin, write “Cost of Goods Sold” and put the total in the right-hand column.
Subtract the cost of goods sold from the total net sales to provide the gross margin. Write “GROSS MARGIN” in all capital letters at the left margin. List expenses beneath the gross margin. Expenses will include salaries and wages, rent, utilities, fees and licenses, miscellaneous expenses and depreciation and amortization. Indent each of the expenses and list them in the left-hand worksheet column. Total the expenses and record the total in the right-hand worksheet column.
Record the profit or loss from operations in the right-hand column. Indent and list “Other Income.” Use this space to record the total of any additional income received by the company. Record the amount of “Other Income” in the left-hand column.
Beneath “Other Income,” list “Other Expenses” and record the total of any additional expenses generated by the company. List this amount in the left-hand column. Add the two numbers together to determine the net profit or loss before taxes. Write the amount of the net profit or net loss before taxes in the right-hand column. Indent and write “Provision for Income Taxes,” estimating the amount of state and federal taxes owed. At the left margin, write in all capital letters “NET PROFIT AFTER INCOME TAXES,” and record the amount of the net profit or loss before taxes less the estimated income taxes owed in the left-hand column.
If you're a small business owner and you're unsure of how to prepare an income statement, get help from your local Small Business Administration.