How to Prepare an Income Statement?
Preparing an Income Statement
An income statement –trading gross profit and loss statement is a very important document for a business. The document shows how the company will be profitable or it is at a given time. The figure from the statement May also indicates how the company makes losses and in what sectors.
Begin by writing the title of your income statement. It should always read like this:
Starting an Income Statement
Income Statement
For the year that ended on June 5, 2009.
However, you will be required to choose the period in which you will be preparing the income statement for. For most business, this is done yearly, quarterly and on a semiannual basis. However, the prevalent trend is for the business that is publicly traded generate their quarterly. However, the shareholders may request for the same information if they need to study the business trends still evaluate the financial progress as well as result of the company. The format here is too important and it should be written the same as in the example.
Commence By preparing the Gross profit/loss Section
1. First get your figure for the opening stock –depending on the period for which you are preparing your income statement for. Add to the purchases that the business made during that period. The overall figure that you will get will be the cost of the total goods that are available for sale.
2. Still, there are some adjustments that are done to purchases like the carriage inwards and carriage outwards. If you experience some transportation cost in the purchase of your merchandise, you will add that to the cost of purchase.
3. Carriage outwards, on the other hand, is an expense and should be accounted for in the purchases. Still, with the cost of good that is available for sale, you can minus purchases return to get the cost of goods sold. Purchases returns are the goods that are returned from the seller to the buyers and they reduce business profit. Purchases return are a liability to the business.
4. With the cost of gold sold, you will now compute the capital of the business. Capital will be subjected to adjustments like the return outwards. Thereafter, you will minus the figure from the cost of goods sold to determine your net gross profit or loss.
5. With the value of the gross profit or the loss, you will and other operating expenses and revenues. Expenses will be on the credit side and revenue on the debit side. Still, if you made a gross profit or loss, this will affect the total value of either side. After adding up the value on both sides. You can balance the same to see if you made a net profit or loss.
However, this is the simplest format of the preparation of the Income statement. It is known as the T format. However, for complex account gurus, they will prefer to use the other form whereby entries are made on either credit or the debit side.