FURNITURE HOME: Beginners Guide in Generating Income Statement

Thursday, January 10, 2013

Beginners Guide in Generating Income Statement

While the term income statement is very commonly heard, not many people know about its precise function. It is very vital financial statement which becomes the main tool for recording all financial activities of a company. Just like cash flow statement, it can become the main clue for investors in reading the performances of the company in the past. Investors can decide whether they are going to make an investment or not to the company. When the income statement reveals the company’s steady profit, they will not doubt to make an investment in big amount. Investors can read through the gains and revenues as well as losses and expenses made by the company. As a result, when the company gains less and spends too much expense, then it has a net loss with negative statements.

If you happen to be a new person who works as an accountant, you might still have to learn about generating income statement. Surely, you have already gained some knowledge related to the theories of all financial statements. But the reality that you face on the working place is surely different. Let’s begin by putting the header at the top of the statement in which it should contain the name of the company and the time length of the written income statement.

Then, create at least three columns for item, debits and credits after you jump for two lines from the header. The first thing that you need to write on the first list is the revenues which are made by the company that you are working at the moment. What you should write down on revenues include:

Sales
Sales discounts subtracted
Allowances
Returns.

Count them all and write down the total amount on the column of DEBIT.

Expenses will be the next thing that you should put down on a list. Yet, it should be noted that there are various kinds of expenses that you have to use for the whole time period on the income statement. What you should write down on expenses include:

Utilities
Insurance
Advertising, etc. including entertainment

Count them all and write down the total amount on the column of CREDIT.

When you subtract the credit amount with the debit amount, then you can find out whether the result is negative or positive. When it is positive, you can put the final number on the end of the row and make sure that you write net cash profit. On the other hand, put down net cash loss when the result is negative. The main aspect that you should keep in mind is that the income statement should represent transactions on certain time period as it links a lot with company’s balance sheet representing each transaction in the company.

Income Statement Sample #1