Companies prepare financial statements on a monthly basis in order to keep score on business operations. The income statement represents the profit or losses generated from certain activities that resulted in expenses a company needed in order to create revenue. Like most revenue-creating activities, the government wants its cut of a company’s profit. Taxes on an income statement are at the bottom, below the pretax income. In most cases, the taxes on an income statement are simply an estimate; the company does not actually know its tax liability until year-end, when it prepares and files taxes.
The income statement typically follows a standard format, so all stakeholders can have a general understanding of the income a company generates. The most common income statement is the multistep format, where a section exists for revenue and gross profit, another for expenses, and a final section for other items and taxes. This last section is where the taxes on an income statement go, providing information on the expected future tax liability for the company. All information above the estimated taxes must be correct in order for the expected tax liability to be correct. A licensed accountant may be necessary to look over and sign off on the income statement in order to ensure it is accurate.
Gross profit is simply revenue less sales discounts, purchase allowances, and cost of goods sold. The next section — typically called general, selling, and administrative expenses — is often quite lengthy. The difference between the company’s gross profit and total expenses is the net profit. If there is no more information that goes on the income statement, the next line represents the taxes on an income statement. Otherwise, a section is necessary for any nonoperating income, gains, losses, or expenses that may not repeat in the future.
Get startedWikibuy compensates us when you install Wikibuy using the links we provided.
In some cases, a company may have large, one-time items that result in a net loss or zero income for the given time period. The taxes on an income statement with this scenario do not affect the information on the income statement. Companies leave this line blank if there is zero net income or the company loses money for the given period. At year-end, the company uses a loss on its income statement in order to reduce its overall tax liability. Again, a licensed accountant or tax attorney is necessary to prepare taxes and ensure everything is copacetic for tax authorities.