An income statement shows your profit or loss for a particular period of time, detailing all revenues and expenses. It should be prepared on a monthly or quarterly basis to allow for proactive management and self-correction. The income statement is primarily an accounting tool to measure business performance.

Another useful tool that will help you to measure your business performance at the outset is the break-even analysis. You can measure your breakeven point in level of sales in either dollars or units (your business ‘breaks even’ when revenue equals total cost).

Use this worksheet to prepare your Income Statement if you are already in business, and as a format for pro forma (projected) income statements.

* Production wages are only included in manufacturing businesses; in retail businesses, wages are included within an operation's expense.

• Gross profit (or income) is obtained by deducting the costs of goods sold (COGS) from sales. The COGS section is primarily used in a manufacturing business or one that holds inventory for resale. Typically, service businesses (such as graphic design, bookkeeping) do not maintain COGS calculations. In other words, in a service business, the gross profit and gross sales are the same amount.
• Net earnings (or profit) or loss is obtained by deducting all expenses from the gross profit.
• Net earnings is the amount to be transferred to the retained earnings section of the balance sheet.