Create an Income Statement

Income Statement Formats

Income statements can be prepared in one of two ways:

Single-step form
Multiple-step form

Single-Step Format

Under the single-step format, which is commonly used by service organizations, all operating revenues and gains are combined and listed first, followed by all combined operating expenses and losses. The difference between total revenues and total expenses represents income from your operations. If there are no non-operating, irregular or extraordinary items, this also represents your net income.

Sample

The following is a sample single-step income statement for a fictitious pet food supplier called Canine & Co. When you have finished viewing the sample, take some time to prepare one for your own company. Keep in mind that the first few statements you prepare may seem difficult.

Before you start, remember to make sure you have the following items on hand:

… A record of all of your expenses during an accounting period

… A record of all revenue that comes into the business for the same accounting period

… Any other documents that provide data for all other operational inflows and outflows

Canine & Co. Statement of Income 1/1/02-12/31/02
Net Sales	850,000
Interest Income	7,950
Gain on Sale of Equipment	11,000
Costs and Expenses:
Cost of Goods Sold	295,000
Selling Expenses	39,000
General & Administrative Expenses	99,000
Interest Expenses	4,800
Income Taxes	235,000
Total Revenue	868,950
Total Cost & Expenses	672,800
Net Income	196,150

Page 8

Multiple-Step Format

This more complex format divides the income statement into separate sections and includes various subtotals to reflect different levels of profitability. Some of the subcategories, especially those reported after operating income, are specified by the Financial Accounting Standards Board, while others have become standardized by wide usage.

Sample

The following is a sample multiple-step income statement for a fictitious manufacturing firm called Avalon Outdoor Gear (which is operating at near break-even level).

Avalon Outdoor Gear Income Statement 1/1/02-6/30/02
Sales	300,000
Sales Returns & Allowances	1,000
Sales Discounts	5,000
Cost of goods sold:
Beginning Inventory	40,000
Purchases	100,000
Freight-In	2,300
Ending Inventory	31,000
Operating expenses:
Selling expenses:
Sales Salaries	49,000
Advertising Expense	8,000
Other Selling Expenses	5,500
General and administrative expenses:
Officers' Salaries	100,000
Office Salaries	12,000
Payroll Taxes	3,000
Insurance	1,900
Depreciation	850
Misc. General Expenses	500
Other Income:
Interest Income	5,000
Gain on Sale of Equipment	0
Other Expenses:
Interest Expense	4,500
Income Taxes	980
Net Sales	294,000
Cost of Goods Sold	111,300
Gross Profits on Sales	182,700
Selling Expenses	62,500
General & Administrative Expenses	118,250
Operating Income	1,950
Other Income	5,000
Other Expenses	4,500
Income Before Income Taxes	2,450
Net Income	1,470