Part 2: 20 Points Prepare A One Page Income Statement

Part 2 20 Pointsprepare A One Page Income Statement For The First Y

Part 2 (20 points): Prepare a one-page income statement for the first year of the business you are planning to open, using appropriate categories of revenue and expenses. For assistance in identifying categories and sub-categories of revenue and expenses, refer to the Financial Statements--Help in preparing them link in the Class Resources area (particularly pages 6 through 8 of "Financial Statement Preparation Guidance Instructions: Financial Statement Entry Matrix") and/or IRS Form 1040, Schedule C. For example, under operating expenses list rent, utilities, payroll, depreciation expenses, insurance, and so on. This part of the assignment is designed to help you with your business plan assignment. If you have a service business and do not sell tangible items that require you to maintain an inventory, you will not have to include a Cost of Goods Sold section in your Income Statement. Please round off cents to the nearest whole dollar value - do not show cents values.

Paper For Above instruction

The preparation of a comprehensive income statement for a new business is a fundamental step in financial planning and analysis. This document provides a clear overview of expected revenues and expenses for the first year of operation, forming the basis for budgeting, financial management, and potential funding requests. For a service-based business that does not sell physical inventory, the income statement will primarily feature revenue from services rendered and various operating expenses, omitting the Cost of Goods Sold section typically found in inventory-based enterprises.

Revenue Categories

In a service-oriented business, revenue categories are straightforward, often reflecting the main streams of income. These may include consulting fees, service charges, subscriptions, or memberships, depending on the nature of the service. It is essential to project realistic revenue figures based on market research or pre-sales expectations. Proper categorization aids in analyzing profitability and monitoring performance over time.

Expenses Categories

Expenses are typically divided into operating expenses that are necessary to run the business. Common categories include:

- Rent or lease payments for office or business premises,

- Utilities such as electricity, water, and internet services,

- Wages and salaries for employees or contractors,

- Depreciation expenses for equipment and furniture,

- Insurance premiums for property, liability, and health,

- Advertising and marketing costs,

- Office supplies and expenses,

- Professional services like accounting or legal assistance,

- Maintenance and repair costs.

If applicable, include other specific expenses relevant to your industry, such as licensing fees or licensing royalties. Each category should be detailed sufficiently to provide clarity for strategic decision-making.

Constructing the Income Statement

The income statement begins with total revenue at the top, followed by subtracting total expenses to arrive at net profit or loss. Since this document is for the first year, projections should be based on realistic estimates, considering market size, pricing strategies, and initial marketing efforts.

It is vital to ensure that all figures are rounded to the nearest dollar, avoiding cents to maintain simplicity and clarity. This precision assists in creating a clean, professional presentation suitable for stakeholders or potential investors.

Special Considerations

Since this is an initial year projection, estimates are inherently speculative; however, they should be grounded in reasonable assumptions and supportive data such as market research or preliminary sales figures. For service businesses, omit Cost of Goods Sold unless physical inventory is involved, aligning with IRS Schedule C guidelines.

Conclusion

A well-prepared income statement serves as a vital financial document that outlines expected financial performance and highlights areas needing careful management. It supports overall business planning and strategy, helping entrepreneurs understand where to focus resources and how to optimize profitability during the crucial startup phase.

References

  • Internal Revenue Service. (2024). Schedule C (Form 1040): Profit or Loss from Business. https://www.irs.gov/forms-pubs/about-schedule-c
  • Brigham, E. F., & Houston, J. F. (2022). Fundamentals of Financial Management (15th ed.). Cengage Learning.
  • Wild, J. J., Bernstein, L. A., & Subramanyam, K. R. (2021). Financial Statement Analysis (12th ed.). McGraw-Hill Education.
  • Financial Accounting Standards Board (FASB). (2023). Accounting Standards Codification (ASC). https://asc.fasb.org
  • Gibson, C. H. (2019). Financial Reporting & Analysis (13th ed.). Cengage Learning.
  • U.S. Small Business Administration. (2023). Recordkeeping for Small Business. https://www.sba.gov
  • Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2020). Essentials of Corporate Finance (10th ed.). McGraw-Hill Education.
  • Higgins, R. C. (2021). Analysis for Financial Management (12th ed.). McGraw-Hill Education.
  • American Institute of Certified Public Accountants (AICPA). (2022). Financial Reporting Standards. https://www.aicpa.org
  • BizFilings. (2024). Sample Income Statement for Small Business. https://www.bizfilings.com

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