The income statement is a type of report that is important for companies to make with proper calculations.
The reason is, this report acts as a benchmark for the financial condition that occurs in a company in a certain period of time.
In addition, the process of compiling and producing it cannot be careless, it must be calculated in as much detail as possible using qualified knowledge and financial capabilities.
Especially if the company is a large-scale or multinational company.
By using this report, it is easier for companies to carry out evaluations based on comprehensive and accountable data information.
Then, what is actually meant by an income statement in a company?
To answer this question, let’s look at the discussion in the article below in more depth.
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Starting from definitions, functions, types, examples or formats, to how to make it.
Definition of Income Statement Is?
The income statement is a type of financial report of a company that contains data on income and expenses that are borne by the company.
Generally, this report is made to describe the financial condition of a company at a certain time period.
For this reason, some of these reports are done at the end of the period or the end of the month, according to the company’s procedures or regulations.
By using this report, superiors can obtain an overview of the company’s financial condition updates to be used as a guideline for evaluating the next period.
So, it can be concluded that the income statement is a financial report prepared in detail and completely by the company’s finance staff as a means of evaluating superior policies for a certain period.
From this understanding, of course you understand that reports for profit and loss must be calculated carefully, accurately and precisely because they can influence the direction of policy.
It would be better if this calculation was done automatically using business financial reporting application technology.
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Profit and Loss Report function
In order to function properly, this report must be made regularly at the end of each month or the end of the period, according to policies agreed upon by various parties.
The calculations must be carried out regularly and on a schedule. Then, what are the functions of making a profit and loss report?
Here’s an explanation:
1. As an illustration of the development of the company
The company’s development can be seen from the company’s financial condition, whether it is in a profit or loss condition, and that can be seen in the company’s profit and loss statements.
If the profit or profit is greater, then the future prospects of the company can be predicted to increase.
Especially if the means of production, human resources and other resources are improved.
2. As Financial Evaluation Material
A company whose business activities are running, it is certain that there are financial transactions in it, whether it generates profits or losses.
The accumulation of the total financial transactions will determine the company’s profit or loss in a certain period of time,
If all types of financial transactions are recorded in full in the bookkeeping application , it will be easier for superiors to find out the origins of the appearance of the financial data clearly.
That data will be calculated as a whole during the evaluation.
3. Reference to Superior Policy Direction
The function of this report is also as a reference to determine the direction of policy from superiors.
The policy is certainly related to financing.
For example, if the profit and loss statement contains more losses due to non-functioning production equipment, then in the following period, the production equipment can be replaced with other tools that are more profitable.
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Various Forms of Profit and Loss Reports
Broadly speaking, the form or format of this report is divided into two, including single-step reports and multi-step reports.
To understand each of the two, let’s look at the following explanation:
1. Single Step Profit and Loss Report
As the name implies, single step is a report format that only shows one type of income and one type of expenditure.
This single step format is generally rarely used by external users due to the limited scope of data and the inability to calculate efficiency and profitability ratios.
This report does have a simple form or format, it does not include details of the financial turnover that occurred in the company.
Start-up trading companies (stubs) or SMEs that usually use this report format.
2. Multiple Step Income Statement
As opposed to a single step report, this report contains more detailed and detailed financial data.
In making this report, an accountant will make expense accounts separately into other, more relevant accounts.
For example, the company’s cost of goods sold, operating and non-operating costs will be separated and used to calculate operating profit, net profit and gross profit.
This type of multi-step financial report has been adjusted based on the company’s profit and loss reporting standards, especially large trading companies.
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Important Components You Should Pay Attention To
Every company must have differences in the format of making an income statement, but in every income statement there are several important components that must be included. Here are these components.
1. Income / Income
The first component that must be present in a company’s income statement is definitely a presentation that displays income or income from sales made.
This component lists the amount of revenue for a product item or product group that is sold.
The value shown is the gross cost associated with making the goods sold.
2. Cost of Goods Sold (HPP)
Then there is the HPP which is used as a comparison and reference for the selling price of a ready-to-sell product.
This component of the profit and loss statement is often called the Cost of Sales in several companies.
The value shown on the HPP is a combination of direct costs that include materials, spare parts, labor, and the difficulty of making a product with depreciation.
3. Gross Profit
The next component is the line that displays the gross profit received.
The gross profit itself is calculated by subtracting the HPP from the sales revenue.
Gross profit will usually be broken down into profits with several calculation techniques according to the policies taken.
4. Marketing Costs
Do not forget that the next profit and loss component is marketing costs which include marketing, advertising or promotion expenses for every product sold.
Most business entities have planned marketing and marketing costs for a product to be sold.
This is to support the surge in market demand for products, as well as filtering which products sell well in the market.
5. Depreciation / Depreciation and Amortization
Another component that is no less important is depreciation or depreciation and amortization.
This component is the nominal value of a company’s assets.
Examples of assets subject to depreciation and amortization are property, tools and buildings.
6. Taxes
Then there is the tax that is borne in the sale of a product.
As a business actor who is aware of the law and obeys taxes, this column cannot be missed.
For each relevant tax, the tax will be charged to pre-tax income.
If you want it to be easy to take care of your taxes, then use the official online tax application from the DGT .
7. Net Income
Then don’t forget, there is net income.
This component is one of the determinants of a business entity experiencing a loss or profit.
Net income is obtained by subtracting income before tax by income tax.
Well, that’s an article about profit and loss reports that you can make reference to.