How do you report revenue on an income statement?

Related CoursesClosing the BooksThe Income StatementThe Soft CloseThe Year-End CloseThe income statement presents the revenues, expenses, and resulting profit or loss of a business

How do you report revenue on an income statement?

Closing the Books

The Income Statement

The Soft Close

The Year-End Close

The income statement presents the revenues, expenses, and resulting profit or loss of a business. It is one of the three components of a complete set of financial statements, where the other two reports are the balance sheet and statement of cash flows. The following steps will show you how to prepare an income statement.

Step 1: Print the Trial Balance

Go to the accounting software and print the "trial balance" standard report. This is a summary report that contains the ending balance of every account in the general ledger.

Step 2: Determine the Revenue Amount

Aggregate all of the revenue line items on the trial balance and insert the result into the revenue line item in the income statement.

Step 3: Determine the Cost of Goods Sold Amount

Aggregate all cost of goods sold line items on the trial balance and insert the result into the cost of goods sold line item in the income statement. The cost of goods sold typically includes the costs of direct labor, direct materials, and factory overhead. This line is positioned directly below the revenue line item.

Step 4: Calculate the Gross Margin

Subtract the cost of goods sold from the revenue figure to arrive at the gross margin. This is the gross amount earned on the sale of products and services.

Step 5: Determine Operating Expenses

Aggregate all of the expense line items below the cost of goods sold in the trial balance, and insert the result into the selling and administrative expenses line item in the income statement. This line is positioned directly below the gross margin line item.

Step 6: Calculate Income

Subtract the selling and administrative expenses total from the gross margin to arrive at pre-tax income. Insert this calculation at the bottom of the income statement.

Step 7: Calculate the Income Tax

Multiply the applicable tax rate by the pre-tax income number to arrive at the income tax expense. Enter this amount below the pre-tax income number, and also record it in the accounting records with a journal entry.

Step 8: Calculate Net Income

Subtract the income tax from the pre-tax income figure, and enter this amount on the last and final line of the income statement, as the net income figure. A variation is to also include net income as a percentage of revenue.

Step 9: Prepare the Income Statement Header

In the header of the document, identify it as an income statement, include the name of the business, and the date range covered by the income statement. The date range is normally for either a month, quarter, or year.

These steps only note the actions required to manually shift income statement information from the trial balance to a manually-prepared income statement. All accounting software has a standard income statement report that automatically presents the information noted in the preceding steps.

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