A well written income statement makes it and its contents easy to comprehend. So to this end, it is important to learn what the format can be like.
Explaining Income Statements
Contrary to what the name suggests, it does not only include the income but takes into account the expenses incurred as well.
It is easy to understand why companies and individuals would want to make an income statement. Everyone would like to know where exactly they are earning money and where they are spending it. Since the number of sources of income are fewer than the number of places you spend the money, the sources are easier to remember. But, one needs to keep an eye on where the money is being spent. Thus, by keeping an eye on the expenses, one can figure out where one is losing money and where expenses can be cut down. In order to maximize the amount of money available for savings and investment.
Apart from this, of course, income statement helps assess the exact tax liability of the individual or the company. It helps you ascertain the exact amount to be paid as income tax to the IRS and hence, the income statement is an important document from the taxation point of view. Hence it is important to know the correct income statement format.
Income Statement Format
The first thing to do here is to split the income statement into two parts: the incomes and the expenses. Now draw up 3 columns. The first column from the left is known as the 'Particulars' column. The particulars column has the name of the head under which the income is being received or the expense is being incurred. The particulars column will show the name of the account under which the transactions are being made.
I like having two different columns for amounts. This is because you might have to show a lot of sub-transactions within the accounts in an income statement and hence, there should be sufficient space to calculate it. So I like to keep the second column from the left for making notes or additions or deductions within the account and the third column from the left to show the final amount.
At the end of the expense and income sections, I also recommend that you keep some place for the totals.
|Income from Sales||$50000|
|Less: Sales Returns||- $500|
|Less: Purchases Returned||$1000|
|Electricity and Other Charges||$1000|
|Administrative and Sales Expenses||$1000|
As you can see, the income statement format is not too hard to make and displays the details of your incomes and expenses in a very easy to understand manner. So follow the above format for best results.