How to do an Income Statement?

The income statement is sometimes called the profit and loss statement or financial statement. Below is an instruction of how to do an income statement. If you are studying accounting or to become an accountant, it is important that you know how to do an income statement in your sleep. How to do an income statement is one of the basic requirement when studying accounting. Sometimes the word financial statement also refers to, not only the income statement but also, the balance sheet. We will later discuss how a business uses pro forma income statement. This is also how to do your personal income statement.

Add up your sales The first thing to do to construct an income statement is to add up all your sales revenue for the period which you are making the income statement for. Check out the period of time on the statement of income.

Subtract your costs of sale

Knowing the cost of sale is a critical part of how to do an income statement. Subtract the costs to produce your products and other costs from the sales revenue. On the income statement, costs of sale is often marked 'cost of goods sold' or COGS.

Calculate Gross profit

Next on the income statement is the gross profit which is the difference between your sales revenue and the cost of goods sold. You can also calculate the gross profit margin at this point and include in the income statement.

Subtract other operating costs

The other important part of the income statement is the operating costs. Operating costs are not related to cost of goods sold.

Calculate operating profit

When you subtract the operating costs from the gross profit, you will end up with operating profit or profit from operation or earnings before interest, taxes, depreciation and amortization. This is also referred to as EBITDA which is used often in equity and investment analysis.