Discover Your Income Statement

by | 09 Apr 2018 | Startup Finance

Income Statement, An Important Asset

Let’s start our journey into financial statements with the Income Statement. This is certainly the best-known report since it represents the operating results of an entity. This document shows you the business financial transactions for a particular time period, such as a month, quarter, or year. Hence, it summarizes revenues, expenses, and gains and losses generated during the reporting period.

Revenues are the income a business receives from its normal business activity. In contrast, expenses are the economic costs a business incurs while generating revenues. Gains and losses are increases or decreases in equity from non-operating or one-time transactions.

The bottom line of any income statement shows the net income or net loss. This is probably the first thing (or even worse, the only thing) you check when you receive your income statement. That’s, above all, one of the biggest mistakes you could make.

So, to understand your income statement, you need to identify each part of this report and know what it means.

Single-Step Format

There are no specific requirements to display on your income statements. For that reason, businesses use one of two general approaches: the single-step or the multiple-step format. The single-step format lists all revenues and gains followed by all expenses and losses. An example follows:

Sales

$ 100,000

Interest and dividends

5,000

Gain on sale investment

2,500

Total revenues and gains

107,500

Cost of goods sold

55,000

General and administrative

12,500

Research and development

5,200

Interest expense

3,800

Total expenses and losses

76,500

Income before income taxes

31,000

Income tax expense

12,400

Net Income

18,600

Multiple-Step Format

In contrast, the multiple-step format shows a series of intermediate subtotals. Those numbers are very important because they help you fully understand your business’ profit or loss and stability. Therefore, here is a simple example of this format:

Sales

$ 100,000

Cost of goods sold

55,000

Gross Profit

45,000

Operating expenses:
General and administrative

12,500

Research and development

5,200

Total operating expenses

17,700

Operating income

27,300

Other income (expenses):
Interest and dividends

5,000

Gain on sale investment

2,500

Interest expense

(3,800)

Total other income, net

3,700

Income before income taxes

31,000

Income tax expense

12,400

Net income

18,600

 

Gloria Ricci

Gloria Ricci

Owner - Succentrix Business Advisors

In 2016, Gloria and her husband moved to Wichita Falls,TX with the air force. Gloria opened her office of Succentrix Business Advisors in order to continue the pursuit of her dream of serving entrepreneurs and independent business owners. Gloria is comfortable with anyone and everyone she meets. Globally, corporations and individuals alike are interested in cost controls, methodology and reporting implementation. Math is a universal language. If you and your small business want to improve what you are currently doing or if you want to take what you are doing to the next level, Gloria is the business advisor you seek.

https://succentrixbusinessadvisors.com/ricci/

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