The Statement of Operations, aka the Income Statement, is one of the three basic financial statements. It’s a statement that provides details of how much your company made over a stated period of time. Unlike the Balance Sheet, which is a snapshot of a very specific point in time, the Statement of Operations describes activity over a stated period, such as a month, a quarter, or a year.
It ultimately tells the reader the amount of the net income of the company, which is the amount the company made during the period. In addition, it breaks down the components of net income. These components include Revenue, Cost of Sales, Gross Profit, Operating Expenses, Income form Operations, Other income, Income Taxes, and finally, Net Income.
Businesses that have good financial information will produce a Statement of Operations at least once per month. After it is prepared, it always ties to the Balance Sheet by way of reconciling Equity before and after the events that generated the Net Income. As a simple example, if the Balance Sheet on first day of the year showed $400,000 in Equity, and during the year the company had $275,000 in Net Income, then equity at the last day of the year would be $675,000.
Forecasted Statements of Operations are essential to include in your business plan because bankers and investors want to know exactly how you intend to generate income. This statement gives them the ability to analyze the reasonableness of your assumptions. Remember, the Statement of Operations is only one of the three basic financial statements, the other two being the Balance Sheet and the Statement of Cash Flow.
For a simple understanding of the other two basic financial statements, visit the video section of our website at www.CfoOutsource.com.