Create and Understand an Income Statement for Your Business

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Step 1 Determine the revenues of your company. This information should come from your sales reports. Unlike a cash flow statement, this number will represent any and all sales completed during the stated period regardless of the payment method. This number will encompass the first section of your income statement. If your organization has multiple revenue streams you should list each stream individually.

Step 2 The second section of the income statement is that of the operating expenses. This section begins with cost of goods sold. This is a simple calculation for wholesales, however with producers it becomes more difficult. You should consistently calculate the cost of goods sold based upon the production processes of the particular product. All other day to day expenses such as administrative personnel, rent, utilities will be listed individually as operating costs in this section. This calculation is many times called EBITDA, an acronym for Earning Before Interest, Tax, Depreciation, and Amortization.

Step 3 As the acronym implies, the next step is to reduce your EBITDA by interest expenses and earnings, taxes, depreciation and amortization. This is excluded from the operating income because it is considered an accounting transaction instead of an operating transaction. The final calculation will reflect the net income for the period in question.

Step 4 This is a general overview of the income statement. Each organization and analyst will seek to find different information from the income statement and will demand different specific information be included but this article will give you a starting point from which to seek the statement that meets your organizations goals.

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