An income statement is one of the primary financial statements. They give you profit and loss in a single glance. They should be created quarterly but can be done monthly. Since they are important for you to judge the soundness of your business, the more frequently they are prepared the better. This way you can make any adjustments that are necessary. The following will help you prepare an income statement.
- Skill level:
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Make general ledger entries. You must have a general ledger and make entries in them daily in order to prepare your income statement at the end of the period you deem necessary. Statements should be prepared quarterly, semi-annually and annually and can be done monthly.
Adjust any entries that need it in the general ledger. Reconcile the general journal, making sure that everything balances and add any adjusting entries that are required.
Do a trial balance. This is another step in the preparation of the income statement. A balance sheet is the other necessary financial statement that needs to be prepared but that is a different statement than a trial balance. Trial balances are done to make sure there are no errors in the data.
Prepare the income statement. If everything in Steps 1 to 3 checks out, you are ready to prepare the income statement. Most small businesses have an accountant actually prepare the statement, but with the advent of accounting software, you may want to do it yourself.
Download the template listed in the resource section and fill in your information. If you don't need to have an accountant prepare your income statement, this template will do the job. Just fill in the information for your own business and you will see your profit and loss. You only need to download it once, and then you can use it as often as you need it.
Fill in your sales and expenses and deduct the expenses from the sales and you will have your net income. You have just prepared your income statement.
Tips and warnings
- If you need to prepare financial statements for someone besides yourself, they may insist that an accountant do it.
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