When it comes to running your small business, there are several financial documents that you need to have up to date and organized. They can be helpful in planning and growing your business, not to mention the fact that you need them for tax purposes as well. Today, we would like to dive a little deeper into one of those documents, the income statement. Propel Your Accounting wants to talk about the elements that make up an income statement and talk about why the income statement is so important to your business.
Main Parts of an Income Statement
An income statement includes several different elements. Here is a closer look at what makes up your income statement:
– Revenue: The amount of money that a company earns by selling its good or providing customers with their services is known as revenue. This is the money that is made from the core activities of everyday, primary operations.
– Cost of Goods/Cost of Sales: Manufacturing companies will have the cost of goods sold included on their income sheet. Retailers will have costs of sales. This won’t include indirect costs like administration or marketing though.
– Gross Profit: When you subtract the costs of goods/cost of sales sold from the revenue, you will come up with the gross profit portion of the income statement. This is an important part of the statement because it shows the company’s efficiency and can be benchmarked against others in the industry.
– Operating Expenses: There are certain costs that are associated with running a business. This is going to be things like your lease, utilities, office supplies, insurance, employee benefits and more.
– Operating Income: You will have your operating income once you subtract operating expenses from the gross income.
– Non-Operating Items: Also included on an income statement will be gains and losses from things like interest and dividends.
– Earnings Before Taxes (EBT): Your income before taxes or (EBT) will include the money that is left over after the entirety of your expenses and losses are subtracted from the revenue and gains.
– Net Income : Your net income or net profit is the money that is left over after income taxes are subtracted from EBT.
Importance of an Income Statement for a Small Business
As you are building and managing your business, the income statement is going to be an important tool. It helps business owners with important decisions is budgeting and financial forecasting. You can quickly identify problems that need to be addressed. They are also used by lenders and investors to take a closer look at the financial health of the company.
Bookkeeping, Accounting, Business Consulting & HR / Admin Services in the United States of America
If you are a small business owner, you need to call on the professionals at Propel Your Accounting to take care of all your bookkeeping and accounting needs. We will ensure you are making the best financial decisions to help grow your business. Call us today!
