A company’s Income Statement is the breakdown of its income and expenses over a period of time specified by the management. It shows the differences between the net income and the net expenses and clearly portraits the performances of the organization within the time specified.
In a layman word, Income Statements show if a company is losing or profiting within the time checked. Guessing the performances of an organization without a clearly verified process can give deceptive and confusing results. Preparing an Income Statement is a safe and sure way of ensuring there are no doubts in a company’s financial outlook. It helps the management to plan for the future as well as determine a change of direction in business activities.
Income Statements can be calculated on a monthly, quarterly, bi-annual or yearly basis depending on the need to the organization involved. For instance, if it is needed for a bank loan, you may need to do a year-long statement while quarterly statements may be used to track the performance of a business strategy or review business operations over a period of time.
How to prepare an Income Statement?
To prepare an Income Statement, a company needs to review all its incomes and revenues. This will help to know how much proceeding is generated at the time being reviewed. These are proceedings from the sale of goods and services; proceedings from sales of properties and disposable assets; other non-operational revenues like interests on loan and payment received from rents, benefits from lawsuits and so on.
For an organization, returns are declared on goods and services provided to the clients even before vouchers are cleared or payment made. So, the organization sums up all these and add them up to give the gross revenue value for the period considered. On the other hand, expenses are calculated by adding up all the values accruing from the process of product/service production. This should also include the losses incurred and the payments intended as benefits during such production.
Preparing Income Statements
Having generated the gross incomes/revenues against the expenses incurred, it becomes easier to generate the net income/loss. You can now subtract the expenses directly incurred within the time from the revenue accruing to the business at the same time. This can be expressed by the following equation:
“Net income (or loss) = (revenue + gains) – (expenses + losses)”
An organization will be considered to have declared profit or loss depending on the results generated from this.
Income Statements are not death warrants for an organization when they turn out negative. Indeed, they are like positive impulses that the management to use to properly chart the course of an organization rightly. It may be showing that the processes and the business model in place need to be improved or replaced. It may also be calling for a total overhaul or operational style and definitely requires management intervention to survive.
Ultimately, such information is timely and important if the people involved accept it and take steps to work on it.
Here is our collection of 27 Income Statement Examples & Templates (Single/Multi step, Pro-forma,