The Income Statement—also called the Profit and Loss Statement—is used to weigh a company’s revenue against its expenses in order to calculate its profits. Comparing Income Statements over a period of time helps a company evaluate where they can reduce expenses, grow revenue and increase profit overall.
1. Pick a Time Period
An income statement can be calculated on a monthly, quarterly or annual basis to measure your company’s profits on a macro or micro level. There are various federal regulatory agencies that require companies to prepare their financial statements on both a quarterly and annual basis for tax purposes. On top of this, many companies choose to create income statements on a monthly basis to look for patterns in their profits and expenditures.
Any company that is considering applying for a business loan will need to use income statements to show sufficient stability and growth over a period of time.
2. Add Up Revenue
The first number to tally on an Income Statement is your total sales. For cash-based businesses, which document sales based on when a customer makes a payment, you will add up the total cash you have already acquired. If your company operates on the accrual method, this means you recognize transactions when the goods have been delivered but your business has not necessarily been paid. In this case you will also include accounts receivable (money owed) as revenue.
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