Read an Income Statement Like a Champ
First off, if you’re an entrepreneur, you should know something about accounting. I know what you’re thinking, accounting is boring — well, at least that’s what they make it to be.
People make accounting sound complex — it isn’t. In fact, you would think that to run a successful business, you’d have to know how your business is actually doing, right? Well, you’d be correct.
An Income Statement does exactly that. It gives you an idea of how your business is doing at a given point in time. It reflects what you’ve earned, and what you’ve spent — usually in a given year. And, the difference between the two — revenue minus expense — is called net income or net profit.
A positive net profit means your business is profitable, while a negative net profit — a loss — means it isn’t.
That’s all you need to know. If you wanted to break it down into smaller chunks and gain more insight, you could calculate gross-profit by deducting cost of goods sold from sales (revenue). Operating income, by further deducting operating expenses. Income before taxes, by further deducting interest expense. And, lastly net profit, by further deducting tax expense.
