How to Prepare an Income Statement

Operating expenses

The Operating Expenses section provides a categorical listing of total expenses followed by the Operating Income. These expenses should only include items related to directly administering your business.

List each expense category on its own line. Then, write the cumulative amount of expenses incurred in that category over the income statement period.

Sum up the total operating expenses and subtract this figure from the Gross Profit figure to get the Operating Income figure.

Non-operating expenses

Next up are the Non-Operating Expenses. Each line of this section should list the total expenses incurred for a category of expenses not directly tied to business administration. Fees from litigation are non-operating expenses.

The next section, usually titled Non-Operating Revenues, should list categories of revenues indirectly related to business administration and Non-Operating Income on separate lines. For example, revenues from interest are one type of non-operating income. Subtract Non-Operating Expenses from total Non-Operating Revenues to get Non-Operating Income.

The Additional Income section comes next and lists revenue and expenses on two separate lines. These revenues and expenses would cover activities not covered in either the operating or non-operating sections.

The final line of the statement should contain the Net Income figure for the accounting period. Get this figure by adding up the Operating and Non-Operating Income figures from earlier sections.

What other financial documents are useful?

Along with the income statement, a balance sheet and cash flow statement can provide an overall picture of the health of your business. A balance sheet shows what assets your business has versus the liabilities and equity at a given point in time. Similarly, a cash flow statement shows both your assets and your debts on a quarterly basis.