How To Prepare An Income Statement Accounting 101

A statement of comprehensive income shows the contents of an income statement followed by a list of other comprehensive income.

How to prepare an income statement accounting 101. Adjusted trial balance if you want you may take a look at how an income statement looks like here before we proceed. Posted on october 29 2020 by. In this tutorial we will prepare an income statement of a sole proprietorship service type business using information from previous lessons. We will be using the adjusted trial balance from this lesson.

Once the information has been verified the closing entries are journalized and posted to the ledger and a post closing trial balance is prepared. This is taken up in higher financial accounting studies. After you calculate net sales and cost of goods sold you can use the rest of the numbers from your worksheet to prepare your business s income statement. It is one of the three components of a complete set of financial statements where the other two reports are the balance sheet and statement of cash flows to prepare an income statement follow these steps.

An income statement which may also be referred to as a profit and loss statement is an important financial report that communicates your business s ability to earn a profit. The income statement format above is a basic one what is known as a single step income statement meaning just one category of income and one category of expenses and prepared specifically for a service business. Examples of service businesses are medical accounting or legal practices or a business that provides services such as plumbing cleaning consulting design etc. When you re ready let s begin.

P the analysis of the income statement involves comparing the different line items within a statement as well as following trend lines of individual line items over multiple periods. Opening inventory purchases goods available for sale goods available for sale ending inventory cost of goods sold. In order to calculate net sales you look at the line items regarding sales discounts and any sales fees on your worksheet. It s standard practice to show three accounting periods on an income statement so the following example lists three months worth of figures but only shows actual numbers for one month.

A sale increases an asset or decreases a liability and. The income statement presents the revenues expenses and resulting profit or loss of a business. To prepare an income statement generate a trial balance report calculate your revenue determine the cost of goods sold calculate the gross margin include operating expenses calculate your income include income taxes calculate net income and lastly finalize your income statement with business details and the reporting period. The break even calculation is all fixed costs divided by the contribution margin.

The following is a basic cost of goods sold calculation. Please consult your financial advisor.