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A small business income statement is a document that lists all the business’s income for a specified time period, usually a year, and provides information about the type of income. When completing such a statement, it is important to claim all income, regardless of its source. In addition, preparers should consider coding their entries in easily identifiable ways and maintaining complete, clear, backup documentation files. The purpose of the statement may dictate the level of detail and documentation required, so it is also wise to fully understand any rules governing the document’s structure or completion.
There are many reasons for creating a small business income statement. Such a statement might be required as part of a tax, audit, or reporting process. It might be needed as part of a business plan, especially where financing or inventors are being sought. In some cases, it might simply be a part of a company’s regular accounting process.
The reason for the small business income statement may determine how it is completed. For example, if the document is required by a taxing or regulatory agency, the agency probably has very specific rules regarding what is included. It may also dictate how certain types of income must be coded. Failure to meet all requirements can result in fines or other negative action, so it is very important to understand the guidelines and to follow them completely.
In most cases, all income should be clearly claimed on a small business income statement. Doing so may be required by law, particularly in tax or regulatory situations. Failing to do so may result in fines, penalties, or even prison time. As the point of some such income statements is to obtain additional funding, the preparer wants to claim all the legitimate income he or she possibly can so as to show the business as profitable.
Coding is often a critical part of a small business income statement. This is the part of the statement that shows what kind of income — such as sale of product, sale of real property, or a capital infusion — each line item represents. In some cases, coding may be dictated by a regulatory body; in others, it is dictated by the company’s accounting system. In either case, coding should be consistent and easy to understand.
Statements are generally summaries that include only the major details of each income transaction. The details are usually maintained in a backup file. This file should be correct, organized, and secure.
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