An income statement, otherwise known as a profit and loss (P&L) statement and profit and loss (P&L) account, is a record that measures and shows all the expenses and revenues a company incurred during a specific period of time. The income statement helps determine a company’s financial health and the financial progress it made during a particular period.
The income statement contains sections for revenue and expenses, which include net sales, gross profit, cost of goods sold, selling expenses, general and administrative expenses, and net profit.
Small businesses can easily prepare an income statement using popular accounting software, such as XERO or QuickBooks. Businesses should consistently prepare a profit and loss statement in order to determine whether they are making profit or loss and why.
In order to have an accurate income statement, accurate bookkeeping is necessary.
Why Small Businesses Need to Prepare an Income Statement
There are many reasons why small businesses should be preparing income statements – and other financial statements. Here are three good reasons:
Helps Make Better Decisions
With a profit and loss statement on hand, a business owner is able to look at the past financial performance of their company. With essential data at hand, from sales to profits and operating and non-operating aspects, a business owner will be able to make better financial decisions. By having accurate figures, a business owner is able to make swift decisions, which would otherwise require unreliable guesswork.
Acts as a Proof of Business Success
Having income statements on paper means that a business owner is able to show a chronological record of how their business has been performing over the course of its existence. This ultimately allows a business owner to play the cards right around the stakeholders, or with the buyers if the owner has the intent of selling the business. A P&L account also becomes useful when new clients who wish to do business want a solid proof of a business’ success.
Helps Prepare a Business to File Taxes
A small business and its owner are subject to various forms of business taxes. Paying these taxes is obligatory by law. In order to ensure what tax liabilities a business has, income statements and other financial statements help a lot. Accurate and up-to-date income statements (along with other financial statements) give a business owner all the necessary information they need to calculate various taxes.
An income statement is one of the very important records that every business must prepare. Preparing an accurate income statement and other financial statements can be challenging for a business owner; however, professional help is available! Get in touch with Affinity Associates and engage their skilled accountants for small business in London.
Affinity Associates is a reputable provider of professional accountancy services for small business in the UK. They have some of the most skilled and experienced accountants and tax accountants for small business in London, who can help business owners prepare all the essential financial statements, from journals and ledgers to income statements and balance sheets. These accountants for small business in London can also assist businesses to prepare and file various taxes.
Contact us at Affinity Associates to learn how our accountants for small business in London can help you https://www.affinityassociates.com/contact-us/.