How To Create a Company Income Statement

In the world of business and trade, the term profit and loss account is familiar to the ears. The income statement in accounting is one of the important things in the accounting period.

This article discusses the meaning of profit and loss, how to compile it, how to calculate it, how to make a profit and loss statement for a trading company, as well as examples of compiling it.

Then you also have to know that if you understand these financial statements you can understand how the financial conditions in your company are.

Definition of Income Statement is

The income statement or profit and loss statement is one part of the company’s financial statements in a certain accounting period that contains the company’s income and expenses, then generates a net profit / loss.

This report consists of revenues during the current period and expenses, both operating and non-operating expenses during the current period.

An income statement statement helps business owners decide whether they can make a profit by increasing revenue, by reducing costs, or both.

Therefore, this report is one of the components that must be included in the books along with the balance sheet and cash flow statement.

Purpose of Making an Income Statement

The purposes of making this report for the company include:

  1. Calculation of the amount of corporate tax.
  2. Check and evaluate profit at any time.
  3. Assessing company efficiency based on business value.

The Main Elements of Making a Trading Company Profit and Loss Statement

The elements that must be arranged in the way of preparing the income statement are:

  1. IncomeIncome is an increase in the company’s assets or inflows from operational activities. Revenue can be calculated by: Total Gross Income – Discounts, Returns, Other Allowances.
  2. Expenses. Expenses are the use of assets or the outflow or incurrence of liabilities (liabilities) in a period due to the production of goods or shipments.
  3. ProfitProfit is the increase in equity due to transactions or owner investments or income.
  4. LossLoss is a decrease in equity due to transactions or expenses and distributions to owners.

Various Profits in the Income Statement 

Before you learn how to calculate profit and loss and create a report, you need to know what profits are included in this report.

Gross profitA measure of direct revenue from the company’s sales in an accounting period.
Operating profitThe difference between sales, costs and operating expenses of the company.
Profit before taxProfit before income tax based on SAK.
Net profitNet sales against HPP less operating expenses and income tax.
Current Operating ProfitBusiness activities in the current period after taxes and interest. Also called earnings before extraordinary items.

Preparation for Preparing Income Statement

You can follow these steps to:

  1. Make transaction journals. The order is: revenue, expense and derivative accounts.
  2. Then recorded in the ledger.
  3. Reports are prepared after the trial balance and adjusting journal entries, or after the work sheet or working papers.
  4. Such as income and expenses in the working paper. This is because there are columns that come from the working paper.
  5. Expenses are taken from the balance sheet column, while profit and loss is the difference between total revenues and total expenses.
  6. When income is greater than expenses, there will be profit. While the total income is smaller than the expenses, it is a loss.

Example of the Format for Making Profit and Loss for a Trading and Service Company (Income Statement)

There are 2 ways to make a trading company profit and loss report, namely by using a single step or multiple step format 

The following is an example and format for making an income statement that can be followed:

Example of a Single Step Report

Total revenue and profit and operating activities are placed at the beginning.

Then followed by expenses and losses in operational activities.

Operating profit = Difference between Revenue and Total Profit and Expense and Loss

The following is an example of making a service company report with the single step method .

ABCD, CO

Income statement

March 2021 period

Income
Net sales$ 800,000,000
          Rental Income$    20,000,000
          Total income$ 780,000,000
Burden
Cost of goods sold$ 300,000,000
          Selling expenses$    15,000,000
          Administrative Expenses$    10,000,000
          Interest expense$     5.000.000
          Net Other Expenses$     5.000.000
          Total Load$  335,000,000
Profit before tax$  445,000,000
           Tax$   111.150.000
Net profit$   333,750,000

Example of Multistep Report

There is a separation between operational and non-operational transactions. Then compare costs and expenses with revenues. 

Operating Profit = Visible Difference Between Ordinary and Unusual Activities (Incidental)

The following is an example of making an income statement for a trading company using the multistep method .

XYZE, CO

Profit and Loss Statement

April 2020 period

Sales revenue
Net sales$ 800,000,000
           Sales Returns and Price Reductions$   40,000,000
           Sales Discount$    20,000,000
Net Sales Revenue$ 740.000.000
Cost of goods sold
Initial inventory$   15,000,000
          Purchase$ 300,000,000
          Bankrupt Burden$   10,000,000
Items Available for Sale$ 325,000,000
           Ending Supplies$   25,000,000
           Cost of goods sold$ 300,000,000
Operating profit$ 440.000.000
Operating Expenses
Selling expenses
            Sales Salary$     5.000.000
            Advertising expenses$     5.000.000
advanced
            Other Selling Expenses$     5.000.000
General Administration Expenses
            Employee Salary and Office Section$   10,000,000
            Insurance Expenses$     1,000,000
            Depreciation and Amortization Expense$     4,000,000
            Uncollectible Accounts Expense$     2,000,000
            Other General Expenses$      3,000,000
Total Administrative Expenses$        35.000.000
Operating profit$      405,000,000
Other Income and Benefits
Interest income$        15,000,000
Profit on Investment Sales$        20,000,000
Other Expenses and Losses
Interest expense$          5.000.000
Losses on Equipment Sales$        20,000,000
Profit Before Income Tax$      433,000,000
Income tax$      108.250.000
Net profit$      324,750,000

Thus the discussion of how and types of financial statements for companies that need to be known.

To make this process easier, you can use accounting and finance software.

Accounting software can list individual transactions and the total money you earn (income) and money spent (expenses).

The accounting software also provide other reports such as balance sheets, cash flows, and other features such as bank reconciliation summaries, inventory applications, changes in equity and automated trial balances.

In addition to financial reports, the online bookkeeping feature of the accounting software is also very helpful for business owners in recording all transactions that occur.


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