Income Statement
The income statement template communicates the inflows and outflows of assets for an individual, family, or business. These inflows are the revenues generated and outflows are the expenses. An excess of inflows over outflows is called net income or net profit, and an excess of outflows over inflows is called a net loss.
The income statement can be expressed as an equation:
Revenue – Expenses = Net Income (Loss)
The income statement template is a summary of the sources of revenues and expenses that result in a profit or a loss for a particular accounting period. That accounting period can be one year, a month, or a quarter. Income statements are always prepared for a period of time.
Revenue: The typical sources of revenue for an individual and household are wages. BudgetPlanningSaving.com encourages households and small businesses to develop multiple streams of revenue, including cash inflows from business assets, passive income, and portfolio income. For businesses, the type of revenue depends on the type of business being operated. A company that manufactures or resells a product would generate sales revenue. A service company on the other hand might generate fees revenue or service revenue.
Expense: Obviously, examples of typical personal or household budget expenses include: rent/mortgage, utilities, food, credit cards, etc. For businesses, typical expenses encountered are salaries, utilities, rent, insurance, and office supplies. Here again, each business entity will have its own unique set of expenses depending on the type of business being operated.
Net Income (Loss): The difference between revenues and expenses is expressed as a positive or negative depending on whether revenues were greater or less than expenses.
If revenues for the month are $5000 and expenses are $3500, then the household or business has a net income of $1500. If the expenses were instead $5500, then the entity would have a net loss of $500.
Balance Sheet
The balance sheet template communicates what the household or business owns in terms of assets, what it owes in terms of liabilities, and the difference between those two which represents what the heads of the household or owners of the business are entitled to. The owner’s portion is called equity.
The balance sheet can be expressed as the fundamental accounting equation:
Assets = Liabilities + Equity
The balance sheet template shows a snapshot of a household or organization’s assets, liabilities, and equity at one point in time and it demonstrates the accounting equation. Balance sheets are always prepared for a point in time.
Assets: The assets of a household or business represent the resources owned by the household or business. These assets can be in the form of cash or things that can be converted to cash like stocks, accounts receivable (for businesses), and they can also be fixed assets like cars, furniture and office equipment.
Liabilities: What a household or business owes to creditors is reported in the liabilities section of the balance sheet template. Creditors are banks and other lending institutions (and suppliers for businesses that are owed money in the form of accounts receivable as well as money that is owed but not yet paid (accruals).
Equity: The difference between what the household or business owns and what it owes represents the owners’ share (verses the lender’s share). For sole proprietorships this equity is usually called capital and for public companies it is often referred to as common stock or share capital. The equity in a household or business is the owners’ claim against the assets owned.
The income statement template and balance sheet template of a household or business are linked through the net income for a period and the subsequent increase, or decrease, in equity that results. The income that a household or business earns over a period of time is transcribed to the equity portion of the balance sheet template. The income represents an increase in the owners’ claim against the assets: Income is NOT a cash asset. It is through the income and equity accounts that the balance sheet template and income statement template reflect the total financial picture of a household or business.
Income Statement Template related to Balance Sheet Template Example:
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