What Is An Income Statement And What Is It Typically Used For?

July 7, 2016 / Reading: 3 minutes

Generating an income statement allows for you to get a clear and concise picture of your company’s finances. A complete summary of all revenues, expenses, trends, and net profits allows for the most accurate approach for adjusting operations.

Alongside the asset report, the announcement of money streams, and the announcement of changes in company’s value, the pay scale is one of the essential methods for monetary reporting. The key thing recorded on the wages spreadsheet is the net salary.

Related: Free Income Statement Template

This summary proclamation is a key figure that is utilized to decide the past monetary execution of your venture, anticipate future execution, and evaluate the ability of creating future money streams.

Using an income statement requires an in-depth understanding of your revenues that goes beyond adding and subtracting. You will need to procure data about your net income, which includes a summary of how well your company performs during a month or quarter, or a single bottom line.

Producing an income statement

You can do this two different ways: a one-step process that calculates all total revenues and expenses into one neat number, or a more involved process that slowly finds your bottom line for a given amount of time. There are more steps, but it isn’t that complicated: simply subtract your overhead costs from your gross profit margin, then deduct your taxes to get your total net income.

Operating revenues and expenses

Also known as your overhead costs, combined with any investments made to improve/upgrade your business. This figure will change greatly if your sales get affected by product defects, store damage, and any long-term fluctuations in manufacturing costs, for example.

The operating costs are very simple to tally: you determine how much it costs to manufacture your products and take it to market, you will account for salaries, as well as the expenses involved in researching and developing the final product before it goes to market. Marketing and advertising could also fall under this category; if you are hiring either 3rd party services or individuals that will be on your payroll, they are an operating cost.

Non-operating revenues & expenses

This includes activities that result in revenues or expenses, such as: the cost of renting spaces/equipment for your business, or the passive income that is gained from indirect grants, loans, subsidies, side-incomes that are not connected to your company, and etc. Non-operating activities aren’t necessarily activities that are not vital to the success of your business, but they do not play a direct role in the functionality of your business, nor do they play a part in producing the components of your products or services.

With an income statement, you are not left playing the guessing game when you are at that point where you have to figure out a plan going forward to make up for losses or to reinvest capital when profits are up. Not having a clear picture of your business’ performance can mean the difference between stalling on the runway or lifting your company into the stratosphere.