Understanding and How to Make an Income Statement, Complete with Examples

The income statement is one of the most common types of reports made by bisnis in a certain period. The sample income statement that will be displayed in this article can help you to compile it if this is your first time.

Before going into the example, consider first the meaning of an income statement and the steps to make it below.

Definition of Income Statement

The income statement is a type of financial statements which contains the income and expenses of a business that results in a loss or net profit.

Making an income statement is not merely a documentation, but has a purpose. The following are some of the objectives of preparing an income statement:

• Help explain the financial condition of the business at the end of the period
• As an evaluation material if there is an increase or decrease in costs that have been incurred.
• Help develop strategies to increase sales.
• As a benchmark in calculating the amount of corporate tax.

With the many purposes of making an income statement, this report is one of the components that must be included in the books and is not only made by large companies, but also small, micro, and medium enterprises.

How to Make a Business Income Statement

As one type of report that has many important purposes, making an income statement cannot be arbitrary. There are several steps that must be taken, starting from choosing a reporting period, making a trial balance, calculating income, determining COGS, calculating gross margins, add operating costs, calculate income, add income tax, to calculate net income.

Selecting Report Period

The income statement is generally made at the end of a period. The period itself can be chosen according to the requirements of your business, whether you want to make it monthly, quarterly, or annually.

Creating a Trial Balance

A trial balance is an internal document that contains the ending balance in each general ledger account for a certain period. You can use the ending balance information in this trial balance to make an income statement.

Calculating Income

The next step is to calculate the total revenue of your business in the period you have previously determined. Income what counts is all the money earned for your services during the period, even if you haven't received all the payments.

Determining Cost of Goods Sold (HPP)

After calculating the income, next you need to determine the cost of goods sold or COGS. You can determine the HPP by calculating the cost of goods manufactured first. For the steps to calculate HPP, you can see here.

Count Gross Margins

Gross margin or gross margin shows the gross amount you earn from selling your goods and services. To get value gross margins, you can subtract the total revenue by the total COGS on your income statement.

Adding Operational Cost

The sixth step is to add operational costs. Just below the line gross margins, enter all operating costs in the trial balance report.

Calculating Income

You can get the nominal income by subtracting the total sales and administration costs from gross margins. Then, enter the amount you earned at the bottom of the income statement.

Adding Income Tax

Next, multiply your pretax income figure by the state tax rate. Then, add under the pre-tax income figure to your income statement.

Calculating Net Income

Net income is your net income. You can get the value by deducting income tax from your pretax income figure. After that, add it to the last line in your income statement.

Sample Income Statement

After knowing the meaning and also how to make an example of an income statement, the following is an example of an income statement from PT. Sincere Works for the period of December 2021:

Well, that's a little information about an example of an income statement that has also been equipped with the definition of the income statement itself, as well as the steps for making it. Hopefully the above information can help you in preparing your business income statement at the end of each period.