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What Is an Income Statement document ?

by GBAF mag

An income statement is essentially a financial document that displays the income of a business s during a specific time period. It also reveals whether a business is making a profit or expenditure for a given interval. The income statement, together with balance sheet and cash flows statement, enables you to know the overall financial health of the company. Here are some tips on how to prepare an income statement properly and get the best value from it.

Include all the income categories. Gross sales revenue, gross profit, and gross margin are the three common categories in which your income statement will contain an item. Other items may be included if they increase the value of the income statement. Other categories you may consider to be additional relevant are accounts receivable and inventory, if they can add value to the bottom line. For a sales person, these additional categories are important because they usually depend on the type of customer.

For the balance sheet, list the current and estimated balances. The difference between them is the net worth or worth less than the selling price. This can be determined by adding the gross revenue and the gross profit to the balance sheet. The difference between the two will determine the net worth of the business. It is advisable for new business owners to use the balance sheets instead of income statements because they have shorter length.

The profit and loss statement show the income statement results side by side. It will show both gross and net profit. In addition, it shows the operating and non-operating income. The operating income refers to expenses such as rent, electric, phone, materials, payroll, taxes, and net trade. Non-operating income reflects items such as amortization of trade equity, interest income, and depreciation of fixed assets.

The income statement also includes the gross sale price of the customer’s account receivable at the end of the period covered. This will include the total of all payments made to the customers, less any fees paid. It does not include the gross value of the goods sold. However, it does include revenues such as the gross revenues less the cost of good sold.

There are three financial models that are used to create an income statement and balance sheet. First is the financial model called the reporting model. It uses a uniform financial reporting system for all reporting periods. It omits the effect of special items such as inventory holding costs and certain types of deferral items. The operating profit and cash flow statement models are similar to the reporting models, except they do not report deferral items. The fourth model, the balanced sheet model, reports the effect of foreign exchange, interest, and market foreign currency exchange rate effects.

Most business owners track their expenses as well as their profits and the difference between them using cash registers or computer programs. Sometimes companies track income statement transactions by using journal entries, micro-format accounting ledgers, or by hand. However, if the company has the ability to use its own accounting software, the income statement can be prepared in a variety of ways. The first step is to determine which method(s) will produce the most accurate and complete results. The next step is to choose an appropriate method.

The basic concept behind an income statement and balance sheet is to show the net income or profit a company makes after all expenses have been deducted. Net income is the more positive figure that is revealed on the income statement. By adding all net gains, all revenues, and all expenses the end result is the company’s net income or profit. This figure can also be updated for the year ended. Accounting guidelines allow companies to make a one-time gain or loss and then compare this directly against another year ended to reveal year-end financial statistics.


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