WHAT IS AN INCOME STATEMENT?
The income statement is the main operating report that shows how much profit you have received over the period. It is a tabular representation of the financial performance of the organization for a certain period.
The income statement discloses the key financial indicators of the company’s operations, such as revenue, cost of sales, commercial and management expenses, other income and expenses, as well as the final financial result.
PARTS OF INCOME STATEMENT
Revenues of the company for the period. It is better to break it into those types of activity or groups of goods, for which it is important for you to control the marginal profit.
- Direct Costs
Direct costs – expenses directly related to the revenue that you indicated in the income. There would be no revenue, there would be no such expense.
- Production Costs
Production costs – costs directly related to the production cycle: wages of production personnel, rental of the shop, production services and so on. These costs are considered conditional-permanent.
They depend to some extent on the proceeds, for example, the electric power of the shop, or the piece-rate wages of workers, but for the most part they are constant.
- General Business Expenses
General business expenses – expenses for servicing your main activity: salary of accounting, financial services, marketing services and salaries of managers, HR and service are constant expenses that do not depend on the amount of revenue.
HOW TO USE THE INCOME STATEMENT?
- Analyze marginal profit by group of goods (activities). Perhaps there is something that gives you a low margin. And if you also use borrowed funds for this kind of activity, then in the end there may be a loss from this direction.
- Set the minimum marginal profit margin below which you cannot go down under any promotions or discounts.
- Control not only the absolute value of each expense item, but also the relative – what proportion of the revenue is taken by the expense item. Variable costs should change in proportion to revenue, and the share of fixed costs should decrease with the growth of shipment.
- Determine your break-even point. Calculate the amount of direct costs using the example of the past period, identify the average margin on actual shipments and understand what kind of revenue you need minimally to cover the fixed costs.
- Analyze the magnitude of fixed costs for the last three periods. And fix the value of fixed costs.
- Plan your incomes and expenses and monthly track deviations.
INCOME STATEMENT TEMPLATES
Making an income statement is not an easy job to do. Especially its format and structure on some level depend on the country where you write it. So, to avoid any misconceptions, it’s better to use an income statement template of the structure and format of your country.
Below are the websites to help you with this process:
- Vertex42 – vertex42.com
- My Accounting Course – myaccountingcourse.com
- SME Toolkit – smetoolkit.com
- Accounting Coach – accountingcoach.com
- Smartsheet – smartsheet.com
- Microsoft Excel Templates – myexceltemplates.com
- Practical Spreadsheets – practicalspreadsheets.com
Get the income statement template now and start writing it without mistakes!