Know Your Business's Health With an Income Statement Example

Michael Pignatelli
Aug 01, 2022

There's no question that keeping your online business healthy is essential for its success. But which report can help you know if your business is doing okay? 

An income statement example can give you a detailed overview of your company's financial health and help you identify areas that need improvement. How can you prepare a comprehensive income statement for your business? 

In this blog, we'll discuss the parts of this crucial financial statement. We will also give examples of income statements that are helpful for your online business. Let's dive right in! 

Income Plus Expense Is the Income Statement

One of the essential financial statements for any business, including online businesses, is an income statement. It shows your revenue, expenses, and net income for a month, three months, and so on. You can use the income statement to assess your small business’s health and make forecasts about its performance.

Perhaps, you're confused by the following names. You shouldn't be, as these statements are all income statements.

  • Profit and loss
  • Operations statement
  • Statement of earnings
  • Consolidated statement of income 

By comparing cash flow period after period, you can get a good sense of how your business is performing. For example, if you see that your revenue is increasing, but your expenses are also rising, you'll know it's time to make some changes to your budget. 

Income statements can also help you measure your strength in sales, see how much leftover money you have, and determine what expenses to cut back on. You can use this document to secure investments or loans. So, if you're not regularly making income statements, now is the perfect time to start. 

How to Prepare This Financial Statement 

Now that you understand the importance of having this statement as one of your financial reports, it's time to learn how to make one for your online business. 

As an ecommerce business owner, you might have already invested in accounting software with templates for these financial statements. But here's what you should remember for the income statement format: headings.

The headings typically include:

  • The business name
  • The period the statement covers
  • The currency in which the financial results are reported

For instance, your business might report its income statement for the fiscal year ended December 31, 2022 in US dollars. Plus, the heading may also include other disclosures, such as whether the statement is prepared on a GAAP or non-GAAP basis

Types of Income Statements

After compiling all of your transactions into their correct charts of accounts, you can choose whether to prepare an income statement using a single-step or a multi-step income statement. 

Single-Step 

So, what is an example of an income statement using the first approach? The single-step income statement computes all your revenue and expenses in a single calculation of net income. Thus, it reports revenues and expenses that are easy to understand

Net Income = (Revenue + Gains) – (Expenses + Losses)

Below is an example of an income statement with this approach. 

MPOM Pet Supplies

Income Statement

For Month Ended June 30, 2021

(in US dollars)

CategoryAmount
Revenues + Gain
Sales$57,000
Capital gains$4,400
Total revenues and gains$61,400
Expenses + Losses
Cost of goods sold $22,200
Rent$8,200
Bank & ATM fees$22
Equipment expenses$900
Marketing and advertising expenses$1,100
Interest expense$4,000
Income tax expense$14,500
Minus: Total expenses and losses$50922
Net income$10,478

Multi-Step

While a multi-step income statement subtracts operating expenses from gross profit to net income. Non-operating accounts, such as interest expense or gains on the sale of investments, are then subtracted or added to arrive at the final figure for net income. Thus, a multi-step income statement provides a more detailed picture of a company's profitability. 

Gross Profit = Net Sales - Cost of Good Sold > Operating Income = Gross Profit - Operating Expense > Net Income = Operating Income + Non-Operating Items

Below is an example of an income statement using the multi-step approach. 

MPOM Pet Supplies

Income Statement

For Month Ended June 30, 2021

(in US dollars)

CategoryAmount
Sales$57,000
Cost of Goods Sold (COGS)$22,200
Gross Profit$34,800
Rent$8,200
Bank & ATM fee $22
Equipment expense$900
Marketing and advertising expense$1,100
Minus: Operating Expenses$10,222
Operating Earnings$24,578
Add: Capital gains $4,400
Minus: Interest expense$4,000
Earnings Before Income Tax$20,578
Minus: Income Tax Expense$14,500
Net Profit$10,478

Comparative Income Statement

Do you want to evaluate your profits over several periods? Then, a comparative income statement will give you a larger view of your business's finances.

It combines information from several income statements into a single statement. This makes it easy to compare your business's performance from different periods side-by-side. You can also compare your income statements with your competitors as an official document open to the public.

By comparing your small business's income statement from one year to the next, for instance, analysts can get a clear picture of its financial health.

MPOM Pet Supplies

Income Statement

For Years Ended December 31

(In thousands of dollars)
201920202021

Parts of the Income Statement

By now, you may realize the three main sections of an income statement—the revenue, the expenses, and the net income. This income statement format is simple enough. However, businesses have different ways to earn income, such as sales from goods sold or services, and spend their cash, such as administrative expenses.

Common items found in any income statement are: 

Revenue

This is the first line item you'll put on your income statement. It represents the total cash your online business has earned in a year, for example. Remember, your revenue is different from profit. Profit is determined by subtracting your total expenses from your total revenue. So, in the sample income statement, MPOM had $57,000 in sales and $50,922 in expenses. Thus, its profit would be $10,478.

Cost of Goods Sold

This item is your business's direct costs from manufacturing your products or honing your services. This item includes the cost of materials, overhead costs, training, and labor used to produce the goods. 

But COGS does not include indirect costs, such as shipping or marketing. The COGS formula is 

COGS = beginning inventory + purchases - ending inventory

All businesses should aim to reduce their COGS to increase profitability. You can accomplish this by negotiating better deals with suppliers or manufacturing products more efficiently. Generally, the lower a company's COGS, its profits will be higher.

Gross Profit

Total sales minus the cost of goods sold is your gross income or profit. Then, you evaluate your gross profit margin. This metric is the ratio of your gross profit to your total sales. You can use the gross profit to recognize your online business's financial health and pricing strategy. 

For instance, if you have a high gross profit margin, you are selling your products at a higher price than your competitors. Meanwhile, you are overspending on production costs if you have a low margin of gross profit.

Operating Expenses

What expenses maintain your business door open? Also known as the general and administrative expense, an operating expense involves expenditures that don't directly relate to making your products or services. It commonly includes:

  • Rent
  • Payroll
  • Travel
  • Utilities
  • Insurance
  • Maintenance and repairs
  • Property taxes
  • Office supplies
  • Advertising

Taxes and Interest

EBIT, or earnings before interest and taxes, measures your business's profitability. It essentially represents the company's operating income or the amount of money it makes from its core business activities before deducting interest and taxes. 

Taxes are government-required expenses, and interest is the cost of your borrowings, such as cash loans.

Interest Income

Other income is a category on the income statement that includes interest income and gains on the sale of assets. For example, you can receive revenue from bank interest while adding the income from selling your equipment or tangible assets to your final profit.

Net Income/Loss

Maximizing profits with an income statement - a woman with a projection of her business’ profits

The final figure in an income statement is the net income or net profit. It shows how much money you will actually get after deducting all of your expenses. To calculate net profit, you subtract your total expenses from total revenue or your taxes and interest expense from your EBIT. 

If the result is positive, the company has made a profit. If the result is negative, your business incurs a net loss. Net income can fluctuate from month to month or year, depending on various factors such as sales revenue, direct cost, and interest rates. 

Prepare Your Financial Reports With Unloop

As an online entrepreneur, it's important to keep a close eye on your finances. After all, you can't continue your operations without a good bottom line. 

One of the best ways to stay on top of your finances is to prepare an income statement and analyze it. If you need help interpreting your numbers, don't hesitate to ask Unloop for our professional advice, ensuring that your business will always be profitable. 

If you have a financial tool on hand, pair it with our easy income statement template. Download it now!

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About unloop
Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting.. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.
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