PREPARATION OF INCOME STATEMENT
Companies are founded/opened with particular set goals,vision, and mission that is to be achieved within a particular period.It may be long-term or short-term.After which financial preparations follow.This is where they decide their financial periods(when to account for their money,when to carry out audits and to identify any deficits or surplus in their finances),financial expectations,and any accrued expenses at the end of the financial period.
So let’s define income statement-Income statement is also called a statement of profit and loss which indicates revenues and expenses that a business/company has incurred during the financial year.It enables the owners and stakeholders of the business to know the financial performance of the business during that particular time.
What do we mean by financial performance of the company?
We look at our revenues.That how much money has the company received during this period before some expenses were deducted?.e.g profit before tax,accrued expenses like salaries to employees and remuneration expenses.This is also known as the net profit. You are an entrepreneur you invested on groceries and your initial capital was shs 30,000.You have bought all the necessary equipment needed and now you are ready to carry out your business.After two months (which is your financial period,you now decide to write down your income statement)
The first thing you are going to review is how much capital did i use to open up the business,and how much income do i have now.Then analyse how much money you received in your business during that period after sale of some tomatoes and oranges and before deducting taxes and rent(that is your revenue). Now after accounting for your revenue let us now account for your expenses.Initially you sold some tomatoes and oranges (right),the money you got after the sale is revenue .You then pay tax with a quarter of the same money,you pay rent,buy some equipment needed for the business in the short-run,since you sell perishable goods some of them go bad and you have to replace them,then you also use the same money as your transport cost .All those are the expenses that are to be deducted from your revenue in order to get your net income.
The purpose of income statement is to show you as an entrepreneur,investor,owner of a company,or you as a person managing your finances whether you made a profit or loss during that time.It opens up your mind that there are many opportunities and so the next step to take to make a plan and budget.If the outcome is a loss,then you need to formulate financial strategies that will enable you to curb the gap and initially start getting profits.Look at your budget and ask yourself this one question,Is the outcome in line with what i had budgeted before?Find the possible opportunities and threats for your company that will enable you to deal with your business weaknesses and and environment’s threats.Then let the strategies come.