Format of income statement
Hi there:,Here is a simplified projection of a financial model, including the so called u2018Three Way Financial Statementsu2019:,The important thing is to observe the correlation and links between the three statements: For example, line 63, Net Earnings, is transferred into the Equity section of the Balance Sheet (line 31).
Observe that this line contains the cumulative earnings for each year.
You can also observe how Dividends are withdrawed inf CF (line 83) and deducted from Equity (line 32).
Equivalent things occur with revenues,costs and expenses from IS being transferred into the CF.
Income statement examples with answers
When analyzing financials of companies, I always look at the cash flow statement first and spend the most time on that compared to the other statements.
,The Income Statement: Answers how are we doing as a business.
It starts with revenue minus expenses to get net income.
,The Balance Sheet: Is a financial snap shot at a point in time.
In other words, at a given date, what were the Assets, Liabilities and Owners Equity of the company.
,For the Cash Flow Statement: the amounts of cash and cash equivalents entering and leaving a company.
It answers the questions of how are operations running, where is the money coming from and how is it being spent.
,Ill give two examples that will help you understand why I prefer the cash flow statement to analyze companies: ,1.
There is freedom within the Income Statement and Balance Sheet to choose how you treat certain transactions.
This creates a situation where two otherwise similar companies have financial ratios that tell a different story.
For example, I can decide if Id like to capitalize (treat an expense an asset and depreciate it over time) an asset on the balance sheet or if Id like to expense it on the income statement.
If I expense it, my net income is lower and if you just compare income statements, I appear to be much less profitable.
Depreciation schedules are subjective as well.
You can choose a more conservative schedule which wil show more depreciation expense earlier on in the assets life or you can have a depreciation schedule thats the same expense each month.
The depreciation expense appears on your income statement each month as a subtraction from revenue.
Two companies that choose different schedules will have different income statements and balance sheets.
,On the cashflow statement, you see the actual cash that went in and went out of the business all in one place and the subjective decisions that each company can have do not matter.
Heres an example: When you are creating a cash flow statement using the indirect method (most popular and easiest to understand method), the first item at the top of the cash flow statement is called Net Income.
The next thing you to do that Net Income figure is, Add back non-cash transactions.
So look at the depreciation example we talked about above.
The depreciation is a non cash expense because you dont pay anyone a depreciation expense.
So no matter which depreciation schedule I choose, I have to add back my depreciation expense to Net Income.
If youre thinking, the depreciation expense that is the highest will add more money to net income than the other company, then youre correct.
The company though that has more depreciation expense though, started with a lower net income figure so each company appears to be even on the cash flow statement.
,For example in a sample cash flow statement it might look like this: , Company A Company BNet Income 200 100nDepreciation 50 150,Cash From Operations $250 $250,nIn conclusion, cash flow statements take the subjectivity out of the financial statements and give a more level playing field.
Income statement Calculator
The main reason this statement was confusing is that the formatting is wrong.
If done properly, you will easily see how Revenue minus Expenses equals Net Income/Loss.
n nPut a section title in capitals before the first revenue line that reads Operations.
Put the Revenue line in bold.
Take the number over to the next column as well.
This is the total revenue from normal operations.
Next, take the total costs and expenses over to the next column as well.
Subtract the total expenses it took to make this revenue and it equals the Loss from Operations, which can be shown in the second column.
Take that number and copy it over to the third column as well.
n nNow do a second section title for Other Revenue and Expenses.
Below this, put Misc Revenue in bold.
Then below that, the interest income from expenses.
Then the other income from expenses.
Total these and copy that figure to the third column as well.
Add those numbers, the total loss from Operating and the total loss Other and you can easily see how they arrived at the Loss Before Income Taxes figure.
n nNow apparently, they are anticipating some kind of tax add-on since they deducted it, so they called that Provision or Benefit for Income Taxes.
This is a third section.
Take this number to the third column and deduct it from the total loss total from Operating and Other sections.
Now the end result is the Net Loss.
n nThey divided this number by the number of shares their corporations currently has issued and arrived at the net loss per share for the year.
Since the number of shares currently issued is not given, I have no explanation for the final number of 614,395.
Is this the number of shares or the amount each investor lost? Not specified, no data given.
This renders the whole Income and Loss statement useless if this is the primary reason for creating it.
However, it is still a good statement for overall income and loss, if you do not want more specific details, such as itemization of the expenses and revenues.
n nPlease see below for properly formatted Income/Loss Statement:n nDarn, I cant seem to copy and paste it here!
Income statement accounts
They almost certainly wonu2019t be.
It takes time to compute the appropriate year-end accruals.
You have to check your bills that came in near year-end to make sure you have allocated each one to the proper period.
You have to finish your end-of-year inventory counts, appropriately value all of the items, and then add everything up so you can compute cost of goods sold.
You have to figure out how much of your early January payroll and payroll taxes should be allocated to late December.
You have to compute the prepaid portion of your insurance and rent payments.
You have to calculate depreciation and amortization on your long-term assets.
Depending on your form of business entity, you may have to accrue income taxes on your business profit.
Only after all of that is done can you close your income statement accounts to equity.
,Until you have closed, your revenue and expense account balances will show the accumulated activity since the beginning on the last fiscal year.
When you do get around to closing, youu2019ll do it as of the end of the last fiscal year, but the actual date of the closing will be some weeks or months after that.
Some accounting software will do a u201cvirtual closeu201d for you, so you can get reports of your activity for the first month or two of the new year before youu2019ve closed the old year.
Of course, these reports wonu2019t reflect your year-end accruals if you havenu2019t booked them yet.
At best, theyu2019ll be cash-basis approximations of your true activity.