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What is an income statement?
Also called a Profit and Loss Statement (P&L), an income statement documents your accounting. Specifically, Investopedia defines a profit and loss (P&L) statement as “a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a quarter or fiscal year.”
Additionally, income statements help uncover the company’s break-even analysis. This is based on an average company’s running costs within the industry, including payroll and fixed costs for items like rent, utilities, etc.
This particular document provides you, your accountant and potential investors key information on how your business is performing.
It can represent monthly, quarterly, or annually snapshots into the business. The statement provides a detailed analysis of how your expenses are linked to profits or losses.
Why do you need an income statement?
There are some key benefits to managing a P&L statement. Advantages include:
1) Organized finances
By using an organized chart of accounts, you can improve your shop’s operations. This documentation enables you to have a bird’s eye view of your finance trends.
Income statements provide a quick snapshot of your company’s day-to-day revenue and losses the shop may incur.
2) Increased business efficiency
3) Smarter business decisions
With every financial detail covered in organized fashion, you can make faster decisions. Using this information, you can also better allocate your budget to accommodate various aspects of your shop.
Perhaps the information reveals you can afford to increase your shop’s labor rate. Or maybe you’re spending too much on parts and need to cut spending in that area.
What information is needed in an income statement?
Put simply, income statements show all the money that comes in and goes out of your business.
An income statement includes the following categories
- Revenue (operating and non-operating)
- Cost of goods sold (COGS)
- Expenses
An income statement is crucial to help identify your total sales. In turn, this information helps you determine your labor and part costs.
Sample income statement
To create an income statement for your auto repair shop, list down all of your income and expenses. It’s that simple!
Here is a sample income statement your auto repair shop can use to get started.
Using the data from this sample income statement, your shop can determine its gross profit and net operating income.
Here are two formulas to calculate those figures:
Formulas source: AutoLeap’s Profit & Valuation eBook
» Looking to transform your shop? Discover how AutoLeap can help.
Wrapping up
Taking control of your shop’s finances is key to becoming profitable. Income statements are a major piece of that puzzle.
