The Income Statement or as it is sometimes referred to the P&L (Profit and Loss) is a statement that measures a company’s performance over a period of time. The top portion of the statement is reserved for revenue reporting while the lower half reports the expenses and finally the profit or loss.
Depending on the size of your business and the type of business you operate the revenue section of the Income Statement could be quite large or quite small. Most businesses break out their revenues into sections or categories so at a glance they can see where their revenues are coming from.
Revenue from operations is the most important section as it reports on the revenues that support your business. It is in this section you may layout your income statement by sales from different areas of your business. If you have a business that has several areas for producing revenues such as sales of pools, parts, and services you may want to identify on the Income Statement the revenues from each of these categories. When producing an Income Statement that separates revenues you can see at a glance where your income generates from.
Creating a general ledger that separates your revenue information into departments or territories can help you assess your revenue producing areas and identify problem areas. Your pool company may break pool revenue into gl accounts like oval pools, round pools, cement pools, above ground pools, rectangular pools, salt water pools etc. The Income Statement would capture and combine the revenue from each one of these gl accounts into Pool Revenue.
The expense side of the Income Statement is generally set up to offset or match the revenue side of the Income Statement when it comes to the Cost of Goods Sold section. The Income Statement is set up to report Revenues from Operations and then revenues from other sources like financing and investing, followed by the Cost of Goods Sold section, and then General and Administrative expenses.
Sales less Cost of Goods Sold is your Gross Income or Gross Profit. It is at this point you can see what revenue is left to pay your other expenses and how you will provide for continued operations. Cost of Goods Sold should normally entail a percentage that you can judge your performance by. By reviewing your financial statements regularly like monthly or quarterly you would be able to identify in a timely manner whether your costs are relative to the percentage you have determined from prior periods.
The Income Statement provides for the reporting of all revenues and expenses and most importantly reports your net income or loss for the period. This report is relied on to help investors and financers to determine the health of your business and the future of your business. This report can help you stay on top of your business and help you in assessing your business well being.