How To Prepare Your Business Income Statement When Auditing
An income statement is an essential part of a business because it is useful in evaluating the overall financial health of a business.
Every company must take some important steps to prepare an income statement in a proper manner and go through the audit process without running into any trouble.
This post aims to help you prepare your business income statement for auditing.
1. Choose a Reporting Period
First, you need to choose a reporting period that you will cover in your income statement. If you are using the professional services of an audit firm in Singapore, you will have no issue in deciding this period.
Generally, companies report their income statement on a monthly, quarterly, or annual basis. Companies should also get familiar with the applicable rules and regulations related to creating income statements in a specific period of time.
2. Create a Trial Balance Report
A standard trial balance report is necessary to create a reliable income statement for a business. Such reports can easily be created by various accounting systems and professional accountants.
A comprehensive balance sheet will provide you with all the information about how a company gathers data for the account balances. Hence, creating the income statement becomes easier.
3. Revenue Calculation
Another important step in creating an income statement revolves around calculating the total sales revenue for the selected reporting period.
A company’s revenue is the sum of all the money earned for its products and services. All the revenue line items should be added from the trial balance report to get the total revenue.
4. Consider Operating Expenses
Another important aspect of creating an income statement is considering the operating expenses. These expenses can greatly vary based on the type and scale of the company. You should add all of the operating expenses given on the trial balance report.
Professional accountants will double-check the amount to ensure an accurate result is obtained. Once the operating expenses are calculated, they should be entered into the income statement as selling and administrative expenditure.
5. Essential Parts of the Income Statement
A comprehensive and reliable income statement includes information about all the money that flows into or out of a company.
It should also include information about the company making or losing money without the involvement of cash, according to the fluctuating value of the business assets. When the income statements items are added, they should equate to the total income of the company.
The four major parts of an income statement are:
- Revenue by category
- Expenses by category
- Company gains on the value of assets.
- Losses incurred over the same period.
Generally, professional accounting and audit firms in Singapore use modern accounting software to calculate the total income of the chosen reporting period. It is important to note that an income statement of a company can vary depending on the type and scale of the company.
6. Writing an Income Statement
Companies can choose to customize their income statements according to their requirements.
However, there is a general process and guidelines related to the preparation of an income statement to ensure an income statement is prepared in an efficient manner. Following the industry standards is also important to ensure compliance with the law.
The four important steps of writing a reliable income statement are:
- Identification of revenue sources and gains from investments and assets.
- Identification of operating expenses and losses incurred in the reporting period.
- Consolidation of revenue, expenses, gains, and losses.
- Total the revenue, expenses, gain, and losses to evaluate the company’s total income.
7. Balance Sheet vs. Income Statements
It is quite common to get confused between a balance sheet and an income statement.
A major difference is that an income statement is used to report the financial activities of a company over a specific period like monthly, quarterly, or yearly.
On the other hand, a balance sheet deals with the company’s financial satiation at a specific point in time.
Furthermore, an income statement covers the entire revenue, expenses, and equity of the business, while a balance sheet deals with the company’s assets, liabilities, and equity.
The Bottom Line
In short, an income statement is an essential part of the company’s financial reporting processes because it provides much-needed information into the various aspects of a company.
It is used to evaluate the efficiency of the company’s operations and working procedures to ensure the implementation of best practices that will enhance profits and minimize losses.
Companies can choose to outsource accounting services in Singapore so that professional accountants can prepare income statements and other financial reports.