1) An income statement is a rich source of information about the key factors responsible for a company’s profitability. It gives you timely updates because it is generated much more frequently than any other statement. The income statement shows a company’s expense, income, gains, and losses, which can be put into a mathematical equation to arrive at the net profit or loss for that time period. This information helps you make timely decisions to make sure that your business is on a good financial footing.
An income statement is used to help business owners decide whether they can generate profit by increasing revenues, by decreasing costs, or both. It also shows the effectiveness of the strategies that the business set at the beginning of a financial period. The business owners can refer to this document to see if the strategies have paid off. Based on their analysis, they can come up with the best solutions to yield more profit.
2) To prepare an income statement, you will need to generate a trial balance report, calculate your revenue, determine the cost of goods sold, calculate the gross margin, include operating expenses, calculate your income, include income taxes, calculate net income and lastly finalize your income statement with business details and the reporting period.
3) Souza's retail shop , inc.
Income Statement
For the year ended in December 2017
Revenues: Merchandise sales 24.800
Total revenues : 27.800
Expenses: Cost of goods sold 10.200
Depreciation expense 2.000
Wage expense 750
Rent expense 500
Interest expense 500
Supplies expense 500
Utilities expense 400
Total expenses : 14850
Net income : 12950
4) Financial Analysis: There are many important steps, such as then and ratio analysis, in preparing a financial analysis. the starting point is the financial statements: Income statement, balance sheet and statement of cash flows.
Cost of goods sold (COGS) as a percent of revenue
Gross profit as a percent of revenue
Depreciation as a percent of revenue
Selling General & Administrative (SG&A) as a percent of revenue
Interest as a percent of revenue
Earnings Before Tax (EBT) as a percent of revenue
Tax as a percent of revenue
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