How To Prepare An Income Statement

Financial management is one of the most crucial activities that every organization must perform to ensure smooth business execution. There is no denying that businesses are all about money as you earn it and spend it wisely to increase profitability. It simply means that businesspeople need to pay augmented attention to generate income more than the expenses.

So, how to know if your company is earning a handsome amount of money? You can do this by preparing the income statement of your businesses. It will help you get a clear picture of business performance for running the operations and decision making.

What is the Income Statement?

The income statement is used to indicate the profitability and loss statistics of a company for a defined period. The loss and profits are calculated by estimating the revenues in one place and then subtracted the operating and non-operating expenditures from it. It may seem easy but a hard nut to crack – surely you will agree to it.

It is imperative to note corporate finance depends on three primary statements for accounting and finance modeling. These statements are used to indicate the overall revenue, expenses, gross profits, administrative costs, and other expenses logically.

Step by step guide to preparing an income statement

Nevertheless, income statement requires you to look into the total revenues, trial balance, expenses, and other such factors. Besides this, you have to consider the taxes and other legal obligations such as VAT calculation for assessing income statements accurately.

Let’s consider essential steps that every business owner and accounting professionals should consider at the time of income statement preparation.

Define a period of reporting

First thing first, the accountants must pick a time frame for reporting. Generally, the business people choose a reporting time that the income statement covers. It can monthly, quarterly, or annually. The companies that deal with a public trading focus more on quarterly or annual reports.

You have to define a proper period that will be covered in the income statement. However, the small business owners should focus on getting their income statements on monthly basis. For this purpose, you can hire the best accounting firms to create income reports regularly.

Create a report of trial balance

A trial balance report is essential for generating an income statement. So, you have to fulfill the requirements to ensure the accuracy of the reports. To generate the trial balance report considers the internal documents including the general ledger for improved reporting. It will help you get the detail of accounting records. Be specific and pay attention to detail. Don’t forget to get the trial balance report for the determined period to avoid confusion in calculations.

Estimate the total revenue

Once you have done with the trial balance report, you need to estimate the revenue generated by the company for a specific period. It is essential to consider the sales that a company has made over time. The total revenue of the business needs to be specific to all the payments received. You need to update the income statement with the line items.

Determine the cost of items sold

It is imperative to calculate the cost incurred by a sold well to come up with the profitability margins. For this reason, you need to identify the cost of every item sold and then plus the total amount of all goods to get revenue generated by line items. For this, you may need other documents including bookkeeping records, cash flow registers, and internal documents.

Estimate gross margins along with operating costs

Income statements are tricky matters as it can attract or distract the business investors. Therefore, you have to be very careful while creating income statements. You need to estimate the gross margin incurred by the goods produced and sold. 

Besides this, you should consider calculating the expenditures used for operating costs. For this purpose, you can highlight the total amount in the income statement to show your operating expenses.

Estimate taxes to get total income

Once you have done with all the expenses, you need to check for the tax amount to be paid or already submitted. While running a company in UAE, you need to comply with VAT regulations and commercial laws. So, you should rely on the best accounting firms in Dubai to finalize the income statement without any difficulty.

There is no denying that professional accountants know the technical aspects involved in the financial statements. Therefore, you can use their expertise to ensure accuracy and transparency.

Prepare income reports in time for corporate trust-building!

Summing up, financial reporting is the most sensitive activity for the organizations. It is because you need to mention each and everything with the utmost accuracy to ensure effective accounts management. If you are working to create an income statement, pay greater attention to detail as a single error in calculation is detrimental for your business credibility.

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