At the end of each accounting time period, a business wipes clean its revenue and expense accounts in order to prepare them for use in the subsequent period. The values accumulated in these accounts are transferred to an aggregate account called either Net Income or Net Loss depending on the situation, which then has its value transferred to a more permanent account on the balance sheet. Net Income (Loss) is calculated thus -- the business' total revenues for the period minus its Cost of Sales to produce its Gross Profit, its Gross Profit minus selling and administrative expenses to produce Operating Profit, and then its Operating Profit minus interest and taxation to produce Net Income or Loss.
Determine what section of the income statement the missing part should be included in. Most businesses have one revenue section at the very beginning, followed by the expenses incurred in acquiring or producing the goods or services intended for sale and were sold, followed by their selling, administrative, and general expenses, and then their interest on debt and taxes on income.
Determine the total value of the section in which the missing part should have been included. Most sections will list the total value of all expenses found in that section at either the beginning or at the end, listed under either a name that indicates their nature as a sum of all such expenses for the period or simply called by the name of their section. For example, the total value of all selling, general, and administrative expenses might be called either Total Selling, General, and Administrative Expenses or simply Selling, General, and Administrative Expenses.
Deduct all listed components of the section's added-up value in order to calculate the value of the missing part. For example, if the business's Cost of Sales has value of $80,000, is composed of raw materials and labor costs, and raw materials has value of $60,000, then its labor costs can be calculated to be $20,000.
Sometimes it isn't possible to find missing parts on an income statement without resorting to other documents. There isn't always enough information on the income statement itself to deduct the values of missing parts.
- Sometimes it isn't possible to find missing parts on an income statement without resorting to other documents. There isn't always enough information on the income statement itself to deduct the values of missing parts.
Alan Li started writing in 2008 and has seen his work published in newsletters written for the Cecil Street Community Centre in Toronto. He is a graduate of the finance program at the University of Toronto with a Bachelor of Commerce and has additional accreditation from the Canadian Securities Institute.