Create an income statement
The income statement was previously known as a Profit & Loss Report. But as the financial regulations have become more global, the document is fast becoming globally known as income statement.
This statement reports the income, cost of goods sold (if applicable) and expenses of a business over a specific time, up to 12 months. Some business owners may choose to produce the income statement on a weekly, monthly, quarterly or six month basis.
If you are a new business and have not started generating income, you can use the income statement as a budget to help you set your targets for income vs expenses.
Generating an income statement
There are four steps in creating an income statement:
- Identify your income or revenue
- Identify your costs of goods sold (this is cost of your product)
- Identify your other business expenses (other than COGS)
- Calculate your profit or loss
The income statement is a fundamental monitor of current performance and if it shows the business is financially struggling, the business owner can take corrective action.
In the next step, we will follow Paul’s business through the creation of the income statement using the four-step process.
Why is an income statement a preferred method of reporting income and expenses in business, rather than relying on your bank statement?
Post your answers to the Comments section.
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