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Ashley is a finance executive. She has gathered all the data from different departments regarding the finances expended as well as earned in the process of selling a product. She needs to prepare an income statement. How should she start preparing the income statement?

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jepessoa

Answer:

The income statement always starts with total revenues. Then you start to subtract different items. A common income statement should follow this format:

To properly follow a format,we must start with the header: Company XYZ, Income Statement, December 31, Year 202X.

  • We must determine total revenue: we should add all the revenue items.
  • Minus cost of goods sold.
  • Gross profit = total revenues - COGS

  • Minus operating expenses: basically operating and administrative expenses.
  • Earnings before interest and taxes (EBIT) = gross profit - operating income

  • Minus interest expenses.
  • Minus income taxes.

  • Net income = EBIT - interests - taxes

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