The income summary reports the income of your business from the income statement. To calculate this income summary, just add together all the expenses. Then, you deduct them from the gross profit and transfer the difference to the income statement. The income summary results are minus from net profit. You need to do this to have a fair idea of the profitability in your business.
When you do the income summary for the year, it gives you a good idea how much more or less you made than you had expected in the previous year. Most business owners have made mistakes in the previous years and have underestimated the income statement or the balance sheet. In most cases, the income statement is far too low when compared to the balance sheet. It is very important to fix these errors when you are doing the income summary as this will enable you to correct any other errors in the financial statements.
The third step in how to do an income summary for a sole proprietorship is to enter the starting balance, ending balance and cash flows. The starting balance is the amount that you have put into the business. It also includes your investment. The ending balance is the amount that you have taken out from the business.
The fourth step in doing an income summary for a sole proprietorship is to enter the income summary based on your daily expenses. The expenses include your labour costs plus sales and expenses for your business. The sales expense is usually the product cost plus sales tax. The daily expenses include gas for your car, lunch and dinner plus any travel expenses incurred. The temporary accounts include the expenses for the operation and maintenance of the building or premises and the depreciation on property and personal assets owned by the business.
The fifth step is to multiply the daily expenses by the number of days in a year. This gives you the amount of your income for that period of time. You can then divide the net income by the number of days in a year to get the annual income for that period of time. You can also do the same with the monthly expenses and the number of days in a year.
The sixth step in doing an income summary for a sole proprietorship is to divide the net income by the number of days in the accounting period. This gives you the annualized net income for the period of time that you have been in business. Again, you can do the same with the monthly expenses and the number of days in the year. The closing entries for your business are made in the Profit and Loss Account, Accounts Receivable and Account Payable. These are all income summary reports that need to be reported to your shareholders at the end of the accounting period.
The seventh step is to report the income summary report for your sole proprietorship at the end of the year. You can do this with the income summary report for your CPA account, or you can do it with the statement of retained earnings account, where the summary will be divided into a net profit and a gross profit. The gross profit will be the column that will show the profit figure after expenses. The net profit will be the column that will show the difference between the gross profit and expense figure. If you have investments, the column for investments will also show the type of investments that have been made.
As you can see, there are seven simple steps that should be taken to keep track of your accounting reports. You can use the income summary account template to make these reports for your business or you can use Microsoft Word to produce the financial statements and the income summary reports. When you use Microsoft Word, you can create the documents quickly and produce the financial statements quickly. Keep in mind that keeping track of your accounting period revenue and expense is vital to your business success so be sure to keep up with it.