One of the most common and important documents will be your income statement. Also called a profit and loss statement, this document provides you with a periodic summation of the profits and losses of the business during a specific time period, which may be one month, three months, six months or a year. The income statement, appropriately named, will provide you with an overall statement of your net income during the selected time period. It will prove advantageous for:
1 Paying taxes
2 Evaluating your current financial position
3 Making financial projections
4 Attracting potential investors
The manner in which an income statement works is relatively simple. By listing both revenues and expenses, you can determine how much money you have earned. It is a simple formula in which you add up your revenues, add up your expenses and subtract the expenses from the revenues. (Revenues - Expenses = Net Income)
The Income Statement answers the question; "How is the business doing?" during a given time period. It allows you to see if you are spending too much money and if so, in which areas you could cut back. It also allows you to compare time frames such as the first quarter of 2008versus the first quarter of 2007. This way you can compare your profits or losses and determine where you need to make adjustments. Your Income Statement should also help you determine your tax liability.
Typically, an Income Statement lists all revenue and expenses. The degree to which you breakdown each expense category will depend on the size and nature of the business along with the types of categories with which your business in most closely involved
1 Paying taxes
2 Evaluating your current financial position
3 Making financial projections
4 Attracting potential investors
The manner in which an income statement works is relatively simple. By listing both revenues and expenses, you can determine how much money you have earned. It is a simple formula in which you add up your revenues, add up your expenses and subtract the expenses from the revenues. (Revenues - Expenses = Net Income)
The Income Statement answers the question; "How is the business doing?" during a given time period. It allows you to see if you are spending too much money and if so, in which areas you could cut back. It also allows you to compare time frames such as the first quarter of 2008versus the first quarter of 2007. This way you can compare your profits or losses and determine where you need to make adjustments. Your Income Statement should also help you determine your tax liability.
Typically, an Income Statement lists all revenue and expenses. The degree to which you breakdown each expense category will depend on the size and nature of the business along with the types of categories with which your business in most closely involved
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