There are several financial documents that are essential in running a small business. They include a balance sheet, cash flow statement, earnings statement and income statement. We are going to take a close look at an income statement today and talk about what is included in this important financial document. Mark Dicus & Company is here to discuss why the income statement is so important and what is included in it.
Parts of an Income Statement
An income statement is made up of several different elements. We would like to take a closer look at each portion of an income statement.
– Revenue: This is another term used to represent the sales of your company through selling products or services during a specific amount of time. These are earnings that are related to the primary operations of the business.
– Cost of Goods/Sales: The cost of goods includes the costs that are associated to manufacturing items. The cost of sales would include the money that is required to acquire the goods. This number doesn’t included indirect costs such as marketing, administration, or distribution.
– Gross Profit: This number is calculated by the revenue minute the cost of goods/sales. It is a great way to decipher the efficiency of a company. It can also be benchmarked against other companies.
– Operating Expenses: These are the indirect expenses that are required to run a business. It might include rent, utilities, maintenance & repairs, employee benefits and more.
– Operating Income: Once you have subtracted your operating expenses from your gross profit, you will have your operating income.
– Non-Operating Items: Interest and dividends are good examples of non-operating items. These are gains and losses from non-core activities.
– Earnings Before Taxes (EBT): The money that is left over after expenses and losses are subtracted from the revenues and gains. This is another profitability indicator for small businesses.
– Net Income: Net income or net profit is the number that is left over after income taxes are subtracted from the EBT.
Importance of Income Statements
The income statement is an important one for businesses because it is used for managing and building your business. It is often used when working with investors, bankers and partners. This document can help with financial forecasting, budgeting and strategic planning. Lenders and investors will use the document to take a closer look at the financial health of your company. It is also an important part of tax filing.
Tax Preparation, Filing, Planning & More in Salt Lake City, St. George, West Valley City, Provo, Orem, West Jordan & Greater Cedar City, Utah
As a small business owner, it’s important that you have the right bookkeepers and accountants in your corner. At Mark Dicus & Company, we work to help you achieve success as we work with you to keep all your important financial documents up to date and organized. We will assist you in filing taxes and help you plan for the future of your business. Call us today!