Accounting and income statement: The income statement in accounting

We explain the importance of accounting and the income statement. Accounting is an essential part of any company that wants to achieve profitability. Among the most important aspects of this world is the income statement in accounting. As we will see throughout this article, it allows companies of all sizes to view their financial statement, with reports related to their profits and losses over a certain financial period.Contents hide 1 Accounting and income statement2 What is the income statement? 3 How to make an income statement step by step? 3.1 Components of an income statement3.1.1 Revenues/Sales3.1.2 Cost of goods selled3.1.3 Gross profit3.1.4 Marketing, advertising and promotional expenses3.1.5 General and administrative expenses3.1.6 Earnings before interest, taxes, depreciation and amortization 3.1.7 Depreciation and amortization expenses3.1.8 Operating revenue3.1.9 Interests3.1.10 Other expenses3.1.11 Income before taxes3.1.12 Income taxes3.1.13 Net income4 How do you present an income statement? Accounting and income statementAccounting is one of those burdensome tasks for small businesses that are often outsourced. This is something delicate, because a miscalculation can deprive the company of competitiveness or even of a viable future. The income statement in accounting allows us to know if the company is meeting its objectives, generating profits or spending too much. The steps to make this report are not complicated, although they require having all the necessary information on corporate accounts, such as the costs of production, personnel, machinery, fixed assets, etc. What is the income statement? This is one of your company's most important financial reports, showing profits and losses over a specific period of time. Gains or losses are calculated by taking income and subtracting all expenses. The income statement is one of three statements used both in corporate finance and in general accounting. Along with the cash flow and the balance sheet, it completes the standard financial information of any company. It is current that is divided into periods of time that follow the company's operations. The most common is that it is done once a month for internal purposes. Some companies may manage shorter periods of time, depending on business culture, country or sector. Quarterly, quarterly and annual periods are also common periods of time in income statements. This is a good place to start a financial model for your company, since it requires less financial information than the balance sheet and cash flow. In terms of information, making this report is the first step to the other two. How to make an income statement step by step? If you are already clear about what an income statement is and what type of information it requires, it's time to get to work. Components of an income statementThe type of operations and the company's sector will influence this report, so no two are the same. However, there are certain generic items that can serve as a starting point for making an income statement step by step. The following items are usually included: Revenue/SalesThis is the company's direct income, either from sales of products or services. It is important to include all sources of income that are added to total revenue. Cost of goods sold. The cost of goods sold or cost of sales for service companies are direct costs to be calculated. It can include things such as labor, parts, materials, machinery or tools or personnel expenses. It is also possible to include in this item the costs derived from depreciation, which we will see later. Gross profit Gross profit is calculated by subtracting the cost of the products sold (or services) from the revenues generated.Marketing, advertising and promotion expensesMost companies, and more so since many of them market their products through the internet, have expenses derived from the promotion of products and services. It is normal for marketing, advertising and promotion expenses to be grouped together, since they ultimately seek to publicize the brand and its products and services. General and administrative expenses This item includes expenses related to the administration of the company, as well as those related to sales. We are talking about salaries, salaries, rents and business expenses such as internet, mobile, insurance, travel, diet and so on. Earnings before interest, taxes, depreciation and amortization. This item is calculated by subtracting sales, general and administrative expenses (excluding amortization and depreciation) from gross. Depreciation and amortization expenses Depreciation and amortization are non-monetary expenses that distribute the cost of assets such as property, equipment or vehicles. Operating revenues represent what is earned from regular business operations. It is a term commonly used in finance and means earnings before interest and taxes.InterestsMany companies have interest-bearing loans that must be paid monthly. It is normal for companies to account for this item separately because they can represent a significant item.Other expensesIn addition to everything mentioned above, many companies may have expenses unique to their industry, such as expenses derived from compliance. By compliance, we refer to the regulations that accompany certain industries, such as food or pharmaceuticals. They must face audits, strict controls and important quality requirements. All of these activities can involve a significant outlay that is accounted for here. It also makes sense to account for R&D expenses, profits or losses from the sale of investments, the impact on exchange rates and many other expenses specific to the industry or business.Income before taxesIt is obtained by subtracting interest expenses from operating income. This is the final subtotal before net income is reached. Income taxesIncome taxes refer to the corresponding taxes that are charged on income before taxes. Total tax expense can consist of both current and future taxes. Net incomeNet income is calculated by deducting income taxes from pre-tax income. How is an income statement presented? An income statement is presented in the form of a spreadsheet, which reflects all the items we have just analyzed. The interesting thing is to compare income statements from different periods, because an isolated period will only give us an image of the company's financial state at that time. Thanks to the comparison, we can see if the company has had sustained growth over the months, quarters or years or if, for example, they have problems balancing certain items. In addition, these comparisons allow those responsible for company finances make decisions in the short term that impact cash flow and the balance sheet. Needless to say, you don't have to do all these calculations yourself. You can count on a tool to assist you, such as Mobilvendor. Thanks to its different modules, including an accounting module, you can always know what the company's income statement is in a few steps. Monitor, manage and manage your business so that making this report is not a daunting task.