Income Statement |
The income statement is where you make a case for the business potential to generate cash. This document is where the you record revenue,
expenses, capital, and cost of goods. The outcome of the combination of these elements demonstrates how much money a business made or will make, or lost or will lose, during the year. An income statement and a cash flow statement
differ in that an income statement does not include details of when revenue is collected or expenses paid. Accrual accounting and cash basis accounting methods will influence the "bottom line" shown. While the legal
implications for these methods are most pertinent to the Income Tax Authorities, an astute investor will detect any "slight of hand" that may be used to show the figures in the best light. For this reason a you should
employ the skills of a business oriented accountant. An income statement projected for a business plan should be broken out by month for the first year. The second year can be broken down quarterly, and annually for
each year thereafter. Compute financial management ratios and analyze the results of the income statement briefly and include this analysis in the business plan. If the business already exists, include income
statements for at least the 3 previous years. As with all financial documents, having the income statement prepared or at least reviewed by a reputable accountant is money well spent. Any exceptional data should be explained.
Understanding And Preparing The Income Statement : The Income Statement is a record of sales (revenues) and expenses of your business for a specific period of time. Revenue:
The gross proceeds from the sale of goods and services prior to the deduction of the costs of goods and expenses. Rents, dividends, and interest earned are also revenues. Cost of goods/services sold:
The direct costs incurred in the making of your product and/or service. This would general include inventory consumed in the production of your product and direct labour costs. Gross profit:
The excess of sales price over the direct cost of sales. Selling expenses:
All expenditures that you incur, such as advertising, automobile, salaries and commissions, that are directly related to selling your product and/or services. These expenses will generally vary with your sales volumes. Administrative expenses:
All other expenses that are required to operate your business. These expenses do not generally vary with your sales volume. These expenses generally include rent, utilities, insurance, interest on borrowed funds, management salaries, telephone, repairs and maintenance expenses, etc.
Depreciation: A proportion of the cost of fixed assets charged as an expense. Net earnings/loss: The true profit (or loss) from sales after making provision for all expenses. Assumptions would normally be documented (but not necessarily limited to the foregoing) for :
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