Things You'll Need:
- Two- or four-column accounting worksheet
- Pencil
- Financial documents used to determine income and expenses
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Step 1
Center the company’s name on the top line of the page. Beneath that, center the words “Income Statement.” Directly beneath “Income Statement,” center the words “For the _____ ending _______.” The income statement is usually prepared for a specific time period such as a month, a quarter or a year. If you were preparing the income statement for the first quarter of 2008, the last line of your heading would read, “For the quarter ending March 31, 2008.”
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Step 2
The first item on your income statement will be net sales. This amount is determined by totaling all sales made during the period. Any returns during the period will be subtracted from the net sales. Any discounts given to customers would also be subtracted.
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Step 3
Next list the cost of goods sold. The cost of goods sold is the total price paid for products sold. This amount does not reflect expenses incurred in running the business, as these expenses will be deducted later on the income statement. To determine the cost of goods sold, indent and list the amount of beginning inventory in left-hand column. On the next line, list merchandise purchases. The amount of merchandise purchases will also go in the left-hand column to be added to the beginning inventory. Freight or shipping costs will also be added to this amount.
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Step 4
The amount of beginning inventory, merchandise purchases and freight will be added together to provide you with the cost of goods available for sale. List “Cost of Goods Available for Sale” on the line beneath “Freight” at the left margin. Put the total of cost of goods available for sale in the right-hand column. Indent and list “Less Ending Inventory,” deducting the amount of inventory on hand at the end of the period. The amount of cost of goods available for sale less the ending inventory provides you with the cost of goods sold. At the left margin, write “Cost of Goods Sold” and put the total in the right-hand column.
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Step 5
Subtract the cost of goods sold from the total net sales to provide the gross margin. Write “GROSS MARGIN” in all capital letters at the left margin.
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Step 6
List expenses beneath the gross margin. Expenses will include salaries and wages, rent, utilities, fees and licenses, miscellaneous expenses and depreciation and amortization. Indent each of the expenses and list them in the left-hand worksheet column. Total the expenses and record the total in the right-hand worksheet column.
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Step 7
Deduct total expenses from the gross margin to calculate the company’s profit or loss from operations. Record the profit or loss from operations in the right-hand column. Indent and list “Other Income.” Use this space to record the total of any additional income received by the company. Record the amount of “Other Income” in the left-hand column.
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Step 8
Beneath “other income,” list “Other Expenses” and record the total of any additional expenses generated by the company. List this amount in the left-hand column. Add the two numbers together to determine the net profit or loss before taxes. Write the amount of the net profit or net loss before taxes in the right-hand column. Indent and write “Provision for Income Taxes,” estimating the amount of state and federal taxes owed.
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Step 9
At the left margin, write in all capital letters “NET PROFIT AFTER INCOME TAXES,” and record the amount of the net profit or loss before taxes less the estimated income taxes owed in the left-hand column.
