The most common type of financial statement is the profit and loss statement, often called an income statement. All public companies are required to prepare one and make it available to the public each fiscal year. Businesses use the data to evaluate profitability, calculate various financial ratios and as income validation for loans and potential investors. The statement displays income for the period from all sources, all expenses and the net profit or loss for the period.
Create a line titled "Sales Revenue" or "Service Revenue" depending on the type of business and insert the total amount next to the title.
Designate a line titled "Cost of Goods Sold" beneath "Sales Revenue" if your business is product-based. Subtract the cost of goods sold from total income. Label the sum "Gross Profit." Omit the cost of goods sold and gross profit lines if your business is service-based. Create a line for service revenue under "Gross Profit" if your business offers both products and services.
List all operating expenses below the "Gross Income" line. Operating expenses include labor and materials associated with producing a product or service. Add the expenses together and label the sum "Total Operating Expenses." Subtract the operating expenses from the gross income and label the sum "Operating Income."
Tally all indirect expenses beneath the "Operating Income" line. Include all remaining expenses such as office supplies, rent and utilities expenses and any other expenses. List the totals next to the category. Add the expenses together and label the sum "Total Non-Operating Expenses"
Subtract the non-operating expenses from the operating income total and label the sum "Net Income."
- "Financial & Managerial Accounting: The Basis for Business Decisions"; Jan Williams, Sue Haka, Mark Bettner, Joseph Carcello; 2010
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