Introduction:

The income (profit and loss) statement is the document which demonstrates how much money a company has earned and spent over a particular period of time. 

This checklist is intended to be run at the end of every quarter.

The basic equation of an income statement is:

Revenue - Expenses = Net Income 

Use this checklist to make sure you're accounting for your earnings and operating costs correctly.

You can watch this video below for a more detailed overview.

Income Statement Explained: Comprehensive Income Statement Tutorial - Accofina

Gross profit:

Record your sources of revenue

Record all sources of revenue to show a breakdown of where the company's income is coming from. 

It is important to display the information in a way which is clear and representative of the operations of the business.

Income Statement Example

Calculate total revenue

Add up all sources of revenue to calculate your total revenue. 

Sources of revenue: {{form.Sources_of_Revenue}}

Record total revenue in the form field below.

Record your costs of goods sold (COGS)

Recording the costs of goods sold is intended to summarize the total costs involved in manufacturing a product. This can also be applied to a company which sells a service - the choice of variables will, however, be different.

There are a series of potential factors you may have to include when calculating your costs of goods sold. Use the sub-checklist below to check you have taken into consideration all of them:

  • 1
    Raw materials
  • 2
    Direct labor
  • 3
    Factory costs
  • 4
    Shipping costs
  • 5
    Delivery costs

Calculate gross profit

To calculate your gross profit, subtract your total cost of goods sold from your total revenue calculated in task 3. 

Total revenue: {{form.Total_revenue}}

-

COGS: 
{{form.Cost_of_goods_sold}}

Use the form field below to record your gross profit.

Net income:

List all other operating expenses

Operating expenses is a very broad category. It covers all the aspects of the business which are required to run the business day to day, while also covering expansion costs. 

Use the subchecklist below to make sure your list of operating expenses covers all the key areas of a business.

  • 1
    Salaries
  • 2
    Administrative expenses
  • 3
    Rent
  • 4
    Depreciation of properties
  • 5
    Expenses
  • 6
    Advertising
  • 7
    Research and development
  • 8
    Outsourcing
  • 9
    Consultancy

Calculate profit before taxes

Add up the total operating expenses cost and subtract it from gross profit. This gives you your profit before taxes.

Gross profit: {{form.Gross_profit}}

-

Operating expenses: {{form.Operating_expenses}}

Record your profit before taxes in the form field below.

Calculate net income

Subtract tax from the "Profit before tax" figure (below) to calculate net income. 

Retained earnings:

Consult previous year's report for retained earnings (RE)

Retained earnings act as a summary of all the money generated since the organization was founded. It is the sum of all net income and net losses since inception. 

Consult your previous income statement to find your most recent calculation of retained earnings.

Take net income/loss and add to RE

Take your current net income/loss, add it to your existing retained earnings and subtract any dividends to update the figure. 

Beginning retained earnings: {{form.Beginning_retained_earnings}}

+

Net income: 
{{form.Net_income}}

Record your updated retained earnings in the form field provided.

The formula to calculate retained earnings is

Retained earnings = Beginning retained earnings + Net income - Dividends

Sources:

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