Many new business owners find that the financial aspect of doing business isn't their strong suit. From reconciling the accounts to creating financial statements, the entire process can be overwhelming. If you've come to the end of your first month in business and you're ready to start evaluating performance, one of the things you need to assess is your current income statement. Don't let the idea intimidate you - it's not as hard as you might think. Here are a few tips to help you create it properly.
Start WIth Proper Formatting
The format of the income statement is important, because it sets the stage for the entire report. While some of this information may seem insignificant, it's essential that you include it both for your own reference and that of anyone who may need to assess the statement later.
Create a centered header at the top of the report. It should list your company name on the top line, followed by the words 'Income Statement' on the second line. The final line should detail the reporting period that is reflected in the information. For example, if you're reporting at the end of November, it should read 'For The Period Ending November 30'.
Create The Income Section
Immediately beneath the header should be the income information for the period. Label the section 'Income', then list 'Net Sales' as the first line. Beside that label, you should list the total net sales figure for the period. That figure should be your gross sales for the reporting period less returns.
Follow the 'Net Sales' details with the 'Cost of Goods' line. This should reflect the cost of those goods that were sold during the period, such as the production expenses, manufacturing costs and materials. The section closes out with the 'Gross Margin' line. Subtract the cost of goods from the net sales to arrive at this number.
Detail The Expenses
After the income section comes the operating cost for the reporting period. Label this section 'Cost of Operation' and list the operating costs, including your facilities, administrative expenses and the depreciation of any equipment. End this section with a summary line labeled 'Operating Income.' Subtract the operating expense figure from the gross margin to fill in this line.
Highlight Any Unusual Activity
Under a final section called 'Other Activity', you should include any unusual financial activity such as interest, dividends or tax payments. Any other one-time expenses or profits (such as the sale of equipment) should appear here.
Summarize The Income
The last line of the statement should be labeled 'Net Income or Loss' and should reflect the difference between the figure on the operating income line and your 'Other Activity' figure.
Income statements are important for every reporting period, including not only your monthly reporting, but quarterly and annual reporting as well. If you're not particularly skilled in financial assessments and reporting, talk with an accounting professional to help you.