A profit or loss statement is an integral part of an entrepreneur’s financial success story. You might leave as much of your accounting work to a book keeper, internal accountant or external consultant. This is great, but your profit or loss statement — which is also called income statement is something you should know how to read (and produce) on your own.
The income statement gives you an understanding of the actual net profit of your business. This is the only way you can figure out if your business is making money or stacking up losses. It’s quite logical spend more than you earn; expense > Income, then you are in the red!
The essential elements of your income statement are;
- Revenue: This is what your business takes in. This combines any revenue stream, either from the sale of goods or fees or commission received from rendering a service
- Expenses: This is what your business spends. This includes both the costs for operating your business on a daily basis. Think of salary, advertising or marketing costs, travel expenses, utilities, insurance etc.
- Cost of Goods Sold/Service Provided (COGS). This means taking into account the direct costs attributable to what you produce, sell or service you render. For a product business, think of the candle sold in a supermarket at 50 Naira, there were other expenses incurred to get the goods ready for sale, like the jars, wax, and labels.
- Gross Profit: This is the profit earned after deducting the cost of making and selling your products, or the costs of providing a service from the sales revenue.
- Taxation: These are statutory obligations your business owes to the government. Examples are value added tax, personal income tax, company income tax etc.
- Profit after Tax: This the profit for the period after deducting all expense and tax from gross profit
We encourage you to prepare and interpret an income statement for your business today! We have provided an income statement template to serve as a guide, please feel free to download using the link below ………………