12 Elements of the Income Statement

A monthly income statement for at least the first year of operations should be part of your business plan. For the succeeding years, the projected income may be less frequent, owing to the fact that monthly estimates far into the future may not be that credible (It's really difficult to project financial performance past the first year of the business). 

Do also take note that when doing record keeping, it pays to know the difference between cash and accrual accounting systems. Under the cash method, transactions are recorded when money changes hands. For instance, a sale recorded when income is received. Expenses and purchases are recorded when they are paid. This is quite simple and suited for small start ups with no inventory. Under the accrual method, transactions are recorded as they are made. For example, a sale is recorded when the customer is billed with an invoice. Purchases are recorded when the supplier sends the bill. Businesses with inventory and large enterprises are the usual followers of the accrual method. For start ups, one can get free online accounting to help with your business accounting needs.

12 Elements of the Income Statement

1. Revenue: This is the income generated by the business from its operations.

2. Cost of goods: All the costs pertaining to the sale of the company's products.

3. Gross profit margin: The difference between revenue and cost of goods. It can be expressed in peso value or as a percentage, or both.

4. Operating expenses: All the spending (overhead and labor) directly related to the business's operations.

5. Total expenses: all overhead and labor expenses required to operate the business.

6. Net profit: The difference between gross profit margin and total expenses.

7. Depreciation: Reflects the decrease in the value of capital assets used to generate income.

8. Net profit before interest: The difference between net profit and depreciation.

9. Interest: All interest derived from debts. Determined by the amount of investments in the company.

10. Net profit before taxes: The difference between net profit before interest and interest.

11. Taxes: All taxes paid within a certain period.

12. Net profit after taxes: The bottom line for the company. It is the net amount after deducting taxes accrued from net profit before taxes.

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