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Business owners should understand that an income statement is one half of what is called the interim financial statements in business says Edmonton bookkeeping. The first half is the balance sheet, and together, these two reports help entrepreneurs make guided financial decisions in their business. By using these statements before any financial decision that they make can help entrepreneurs make great business decisions in their business. For example, if an entrepreneur wants to purchase assets they can review their interim financial statements to understand if they have the finances available to make that purchase. If not, they can come up with a plan on how they can minimize costs, save money and increase profit so that they can purchase that asset in the future. When entrepreneurs do not consult their interim financial statements before making a decision, they may end up negatively impacting their business that could the financial strain on their business or even causes their business to run out of money.

Because the income statement is one half of that report, entrepreneurs need to learn how to read and understand the information well. The first thing that they should do, is understanding what they are looking at when they review their income statement. They are going to see revenue, which is broken down into different categories of the services or products that they offer. Edmonton bookkeeping says there also going to have a cost of goods sold section, which will have an account that correlates to each of the income accounts they have, and finally, they will have the expenses section of their income statement which are all of the costs that a business incurs that are not related to their product or service.

The first thing that business owners should understand is the income accounts of their business. They should ensure that they are not creating more income counts then around three. Having many more than three says Edmonton Bookkeeping can become overwhelming to manage. If an entrepreneur only has one main product or service, if that can be broken down into different categories, that can help entrepreneurs see the costs associated with each of the different types.

Entrepreneurs may see that they do not have the cost of goods sold account on their income statement and that is not necessarily an error. If they are in a service industry that does not generate any expenses as part of providing those services, then they will not have this section in their income statement. Examples of businesses that may not have the cost of goods sold account are lawyers, accountants, and bookkeepers to name a few. However, if there are businesses that provide the services and they have staff to also provide those services, labor might be their only cost of goods sold.

By understanding the various categories in their income statement, can help entrepreneurs understand how much money they are generating and in what categories, and the expenses associated with that. Also by keeping track of their other expenses, can help entrepreneurs understand how much markup they need to have on their products or services so that they can ensure their covering the other expenses they have that are not covered by revenue.

Entrepreneurs face significant challenges in business today says Edmonton bookkeeping. Industry Canada says half of all entrepreneurs in Canada end up out of business within the first five years. 29% of those failed Canadian entrepreneurs have said that the reason why their business closed was that their business ran out of cash. When entrepreneurs learn how to read their income statements, they can help themselves make better decisions in their business that can help them avoid running out of cash.

One of the biggest questions that entrepreneurs have about their income statement, is what is the difference between the cost of goods and expenses. Ten bookkeeping says that the cost of goods sold is the costs associated with producing their products or services that they sell. Their expenses, on the other hand, are all of the costs that business owners incur whether or not they sell anything.

Examples of the cost of goods sold are labor and materials, whereas expenses can be things like rent, utilities, and office supplies. Entrepreneurs must keep track of all of their cost of goods sold as they associate with each of the different types of revenue they generate in their business. And then their expenses are kept track of in all of the various categories. For example, businesses will have an expense account in their income statement for meals and entertainment. Edmonton bookkeeping says that this is often a misused expense account because entrepreneurs tend to put all of the meals that they eat in the restaurant in this category. However, its primary purpose is advertising. For taking out clients, and potential clients. An entrepreneur may put meals in this category once in a while if they have worked overtime, or if they are traveling, and eating at home is not an option. However, taking clients or prospective clients out for meals, or to entertain those clients like to a hockey game is the purpose of this account.

Another important expense account for entrepreneurs to understand says Edmonton bookkeeping is the payroll expense account. Not only is this important to know, but it also should be organized. All of the various source deductions that a business owner has to take off of their employee’s checks should be organized here so that business owners can keep track of how much they have taken off of their employee’s checks. Not only do business owners have to send the correct amount to Canada revenue agency, but they also have to send it on time and this can help ensure that they do it properly.

The income statement can help entrepreneurs not only stay organized, but also understand what the expenses of their business are, and how profitable each of their income streams is. This can help entrepreneurs minimize expenses, and understand if they need to raise their prices, to increase their profits in their business.