How to Prepare an Income and Expenditure Account

Income and expenditure account preparation

An income and expenditure account lists a company's sales and expenses during a period of time. A tally of this account measures a company's net income. Some income and expenditure accounts are prepared weekly and monthly, however most are prepared quarterly and annually. Categories of income and expenditure accounts include net revenues; cost of goods sold (CGS); gross profit; selling, general and administrative expenses (SG&A); taxes; dividends; and net profit.

Things You'll Need

• Net Sales
• Cost of Goods Sold (CGS)
• Selling, General and Administrative Expenses (SG&A)
• Other Income and Other Expenses (i.e., taxes or dividend income)

Instructions

1. Gather your data. You will need to know your net sales, CGS, SG&A and other income and expense items.

2. Title the spreadsheet or paper with your company's name and the time period the account will cover.

3. Calculate net sales. Add total sales and any allowances to calculate net sales.

4. Subtract CGS from net sales for gross profit. The account statement should look like the following:
   Sales
   - Allowances
   = Net Sales
   - CGS
   = Gross Profit

5. Calculate net operating profit. This is the difference between gross profit and SG&A. The account statement should look like the following:
   Gross Profit
   - Selling and General Administrative Expenses
   = Net Operating Profit

6. Calculate net income based on total expenditures. Total all other income and expense items such as taxes, disposition of assets, unusual income from dividends or royalties, etc. Subtract this amount from your net operating profit. This is your net Income and the final line item on the income and expenditure account statement. The account statement should look like the following:
   Net Operating Profit
   - Other Expenses
   + Other Income
   = Net Income

Tips & Warnings

• Income and expenditures must match. That is, expenses incurred to generate sales must be matched to sales data of that same accounting period.

References

• Session 9: Preparation of Income Statements

Resources

• Example of an Income and Expenditure Statement