How to Prepare Income Statements and Balance Sheets


Income statements and balance sheets provide periodic overviews of a company's financial health. An income statement details expenditures and income during a designated period -- usually a year -- while a balance sheet provides a snapshot of what you own and what you owe at a particular moment in time. Together these documents can help you to assess whether your business is spending more money than it takes in or adding to its value.

  • Gather up all of your company's financial records, including sales receipts, purchase receipts and bank statements. File these records chronologically, creating a separate folder for each month.

  • Maintain ledgers of your company's financial activities. Keep a ledger of outgoing expenses, dividing your purchases into categories such as rent, materials, and payroll, and listing each type of expense in its own column. Also keep a ledger tracking your business sales, totaling daily figures by the week or by the month. Create columns to track your income in different areas of your business, such as wholesale and retail sales or income from goods as opposed to income from services.

  • Create an income statement from your ledgers. Use the top part of the page to list your total business income for the period, breaking it down into categories such as wholesale and retail. Use the bottom part of the page to list your total business expenses for the period, breaking them down into categories such as rent, utilities and payroll. Subtract your total business expenses from your total business income to calculate your net income for the period.

  • Make a balance sheet to document your company's net worth. Use the top part of the page to list all of your company's assets. Include cash on hand, accounts receivable and other money owed to you, such as unpaid debts. Also list your inventory and equipment as well as any equity that you have accrued on business property. Use the bottom part of the page to list all of your company's financial liabilities. Include money that you owe on credit cards and loans, as well as accounts payable. Tally your company's total assets from the top part of the page as well as its total liabilities from the lower portion. Subtract the liabilities from the assets in order to calculate the company's net worth.

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