Vancouver CPA | What an Income Statement Is
When business owners are just starting out, Vancouver CPA says they lack a lot of basic business financial knowledge. And they may be overwhelmed, by trying to learn everything all at once.
This is why, is important for business owners to know what they should learn first. Starting with what an income statement is, and what the information on the income statement is indicating.
An income statement is an important financial document. That will show an entrepreneur all of their revenue, as well as expenses for the past month. This is very important to learn how to read.
Because this will help business owners know how much money they have made, compared to the expenses that they have incurred. And can help them see if they need to increase their revenue.
Or if they need to work on minimizing some of their expenses. Or, if they need to do a bit of both. As well says Vancouver CPA, it can help entrepreneurs understand what bills to pay first.
And by looking at this statement before making any financial decisions. Can help that business owner make that financial decision. By ensuring it is the right decision, and that they are not putting stress on their business financially.
A great example of this, is when entrepreneurs are looking to pay their bills. Rather than looking at their bank balance, in order to see if they have the money to do that.
Vancouver CPA recommends that they look at their income statement instead. And see if they have generated enough revenue to cover all of their expenses. And if they have, they should be able to pay their bills including payroll.
That worrying that they are going to run out of money in their business. However, if they did not make enough revenue. They need to look at their expenses and figure out the most important ones to pay are.
And then come up with a plan on how they are going to increase their revenue. And while these are very important decisions to be making. If entrepreneurs do not know how to read their income statement.
They will be able to make these decisions, and help their business not only be proactive in growing. But also help their business avoid making decisions that would ultimately cost them money.
Therefore, the first thing that business owners need to know. Our what the four main components of their income statement are. And where they will pay her on this document.
First will be revenue, appearing at the top of the page. Which will represent the gross amount of money that an entrepreneur has brought into their business from invoicing clients and selling their products and services.
Below that will be cost of sales, all of the costs directly related to producing their products and services. Including material and labour. And if they do not have sales, they will not have cost of sales.
Below that will be general expenses. And will be all of the other expenses that an entrepreneur will have from operating their business. Whether they have sold anything or not.
And finally, it is the other income and other expenses. For income and expenses that are generated by their corporation. But are not necessarily income or expenses for their business.
By understanding how their income statement is organized. Can help entrepreneurs learn how to read, understand and use this important document.
It is very important for entrepreneurs to not only understand what an income statement is according to Vancouver CPA. But it is very important for business owners to learn how to read it, so that they will be more likely to use it on a regular basis.
This will also help them keep their income statement organized, and easy to read. Because if it is not organized. And it does not easy-to-read, they may avoid looking at it as often as they should.
The first thing that is very important to do. Is ensure that their income statement is just a single page long. Because when the income statement is longer than that, it can be very confusing to read.
It will take a lot more time for business owner to look at multiple pages. In order to understand what is going on financially in their business. And they may end up not looking at it regularly.
And the best way that they can keep their income statement do not with single page according to Vancouver CPA. Is my ensuring that they are keeping their expenses and very broad categories.
Business owners often micro classify their expenses. In order to better understand their numbers. Without realizing that it will make their income statement longer. And therefore more difficult to read and understand.
And instead, Vancouver CPA recommends that they keep their categories very broad. But then they learn how to use subaccounts and their accounting software. So that they can go into detail.
Of all of the expenses that they have incurred. To ensure that the income statement is short. But that they can pull up report their accounting software that will allow them to look at their expenses in a way that is meaningful to them.
Another way that business owners can ensure that their income statement is easy to. Is by organizing it in numerically dissenting order. So that when they look at all of their expenses.
The most significant expenses will run the top of the page. And the expenses that are leased impactful, will be at the bottom. This is especially important if they ever need to demise their expenses.
They will be able to see what expenses they should spend time minimizing. Instead of minimizing expenses that are not going to have a very large impact to their bottom line. Such as minimizing bank charges, cell phone bills or utilities.
The sooner entrepreneurs understand how to organize their income statement. And help them be able to read this important financial document sooner.
So that when they use it prior to making any financial decision. They will be able to make more informed decisions, can help them not only avoid running out of money. But know when they must be proactive and increase the revenue as well.