Creating an income statement

As we discussed in our previous movie, QuickBooks organizes your financial information into accurate reports that you will use to guide your business in a profitable direction. One of the most important financial reports an accounting system produces is the income statement, which is also known as a profit and loss statement. The income statement summarizes a company's revenue and expense for a specific period of time and will let you know if your company is making or losing money. Which I am sure I don't have to tell you is important for you to keep track of. It will also track the profitability of the products you are selling by showing the costs associates with the products you sell, in addition to the revenue they earned.

Revenue is the money you earn by selling and providing products and services to your clients. Expenses represent the money you spend on products and services to run your business. OK, let's look at an example of a simple income statement. At the top is listed the name of the company, the type of report, and the specific period of time that is being reported. As I mentioned, an income statement reports revenue and expenses for a specific period of time, and in this case we're looking at the month of January 2008.

As you can see the income is listed at the top of the report. This represents our sales for the month of January. In addition to income, costs of goods sold and gross profit are also shown. By deducting the cost of goods sold from our income we are left with our gross profit. We're going to be covering costs of goods sold and gross profit in greater detail in the next movie. On the second half of the report shows our company's expenses. If we want to know how much money we made for the period, We simply deduct the total expenses from the gross profit.

If our gross profit exceeds our total expenses then we made many and retained a net profit. Now, what would happen if we had a bad month? If our sales drop and our total expenses are greater than our gross profit, then we lose money and our business suffers a loss. Remember, the purpose of an income statement is to keep track of your revenue and expenses for a particular period so that you will know if you're making or losing money. You can prepare income statements annually, monthly, quarterly, or even daily.

I recommend for most companies you generate monthly statements. I find it very helpful to review revenue and expenses on a regular basis. This will help you spot trends in your spending and sales that you can then use to help guide your business in a profitable direction. We will look at a standard income statement in QuickBooks later on in this title. But to find the report in QuickBooks, go to Reports on the Menu bar, select Company and Financial, and then choose either your Standard or Detail Profit and Loss Statement.