Income Statement Example and Format

Also discover what income statements are used for and why they are so important to your small business.

An income statement, also known as a profit and loss statement, is one of the easiest of the four financial statements to read and fill out.

It is also the first one you need to build because the rest of the basic four financial statements are built off of it.

You use the income statement to see how much your business made (revenues) and how much was spent (expenses) for a specified time frame.

You want to track your revenue and expenses on this basic financial statement, so you can determine what areas of your business are over budget or under budget.

If you sell goods, you can track dramatic increases in product returns or cost of goods sold as a percentage of sales.

You can also use your income statement to determine your income tax liability.

Income Statement Format:

Refer to the income statement example below.

• Gross Sales:
  Amount represents to amount of revenue generated by your business.
• Less: Sales Returns/Allowances:
  Amount represents product returns and /or sales discounts.
• Net Sales:
  Amount represents total sales less any product returns/allowances.
• Cost of Goods Sold:
  Amount represents costs directly associated with making or acquiring your products.
• Gross Profit: (also called gross margin)
  Amount is determined by subtracting the cost of goods sold from net sales. It does not include any operating expense or income taxes.
• Operating Expenses:
  Daily expenses incurred in the operation of your business. The order in which your expenses are listed in the income statement varies among businesses. One method is to list them in order of size, beginning with the larger items. Miscellaneous expense is usually shown as the last item, regardless of size.
• Total Expenses:
  Sum of all expenses incurred in operating your business.
• Net Operating Income:
  Represents the amount of income earned by your business before paying income taxes.
• Other Income:
  Gain or loss on the sale of assets and/or interest income.
• Taxes:
  Some include this on their income statements. It is the amount of taxes you owe to the federal, state, and if applicable, local government taxes.
• Net Income:
  The amount is basically the bottom line. If it is positive, you are in the “black” for the year. If it is negative, you are in the “red”. This is the profit or loss your business has made after all its income and all of its expenses have been taken into consideration.

Note: You may not use all these categories or you may use different categories. For example, if you have a service business, you would probably use Fees Collected or something similar. Use only those categories that pertain to your small business.

Want to learn more about preparing an income statement? See more examples and explanations on the above categories in the AccountingCoach Pro

Income Statement Example:

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