There are numerous metrics and data points that your small business should be tracking; one of the most important is business income. Indeed, an income statement is an essential financial statement that a business uses to understand its financial performance over a set period of time, and make decisions about opportunities and investments in the future.
For business owners who are already tasked with managing the day-to-day operations of the business, though, creating an income statement can feel like an overwhelming chore, especially for those without an accounting background. For the accounting, tax preparation, and bookkeeping services your small business needs, our New Orleans CPAs (Certified Public Accountants) are here to help.
Income Statement – What’s That?
An income statement is one of the most important financial documents that your business keeps. Also known as a profit and loss statement or a revenue and expenses statement, an income statement is a detailed record of a business’s income sources–as well as expenses–during a given period. Most income statements are divided into quarters, tracking business expenses in three-month intervals.
Income statements and balance sheets are often confused as being the same thing, but there are actually some notable differences. An income statement should reflect:
- Costs of producing business goods and services;
- Net sales/revenue;
- Total costs and expenses;
- Operating income (total expenses subtracted from total revenue); and
- Net income/profit.
Essentially, an income statement considers three main things: total expenses, total revenue, and net income. A balance sheet, on the other hand, is used to track assets, equity held by shareholders, and liabilities.
The Importance of an Income Statement
Keeping an income statement isn’t just an important way to gather data about your business’s income and expenses, it’s also one of the financial documents that must be submitted to the Securities and Exchange Commission (SEC) as part of your business’s performance report.
The information in an income statement will not only be referenced when filing taxes, but can also be used to project sales and expenses in the future, consider where expense cuts can be made and revenue streams can be maximized, and make investment decisions.
In addition to an income statement, your business also needs to keep a balance sheet and a cash flow statement.
Our CPAs Can Help
At Estess CPAs, our team of Certified Public Accounts understands that your business has a lot on its plate. For guidance from financial experts who have your best interests in mind, reach out to our New Orleans team today. We specialized in payroll, accounting, bookkeeping, IRS representation, tax preparation, and more, and can help your business create and manage important financial documents, like an income statement. Reach out to us by sending us a message today or call one of our locations directly.