2. Abstract Most college students who wish to go into business for themselves and small business owners do not know the importance of writing an income statement. Many businesses fail due to lack of planning and money management. According to Patricia Schaefer, “A common fatal mistake for many failed businesses is having insufficient operating funds.” An income statement is one of the three financial statements that will show how, where, and when money is misused and give a picture of the flow of funds that come into and go out of the business. A company will be able to see through the use of an efficiently written income statement if insufficient funds or poor money management was the cause.
3. What is an income statement? A statement that: Shows the flow of money in and out of a business. Covers a period of time. Provides information on sales, cost of goods sold, expenses, and other monetary aspects of a business. Provides information for managers and investors to see if money was made or lost. Can be written in two ways.
4. Revenue - money received Expenses - money or asset used to earn revenue. Net Income -revenue minus expenses Asset -anything that a person owns that can be sold for money Net Loss – expenses exceeds revenue Sales – money made from the sale of merchandise Sales returns and allowances – merchandise returned to the seller or reduction in the price of merchandise due to a flaw. Cost of goods sold – cost of any product sold. Selling expense – incurred directly into the sale of merchandise. Administrative expense – are not related to merchandise but whole company. Other income – money received outside of the main business. Other expenses – money owed or assets used that are not business related. Terms 2 Know
8. How are they different? Single-Step Multi-Step Gives a quick overlook of company finances. Consist of only a single step. Focuses on total revenues minus total expense equal net income. Is more detailed. Contains several steps. Gives a clearer picture of all revenues and expenses. Gives a more accurate revenue.
9. If expense exceeds revenue… http://accountingaide.com/examples/incomestmt.htm
12. Mistakes can be fixed on the current years income statement . Record it as an unusual item. Subtract it from gross profit. Continue as usual.
13. Keep N Mind Anytime an income statement is done by the company, a person must keep in mind that some of the numbers are just estimates of what is expected to be the cost. Double check the numbers against any paper work before submitting the income statement.
14. Benefits The company will see where it is spending too much money and were more money may need to be spent. The company will also be able to tell if there is a problem with the manufacturing of its products.
15. The Bottom Line An income statement is the first financial step to running a successful business.
