An income summary or statement of earnings is a statement of the business’s income and expenditures during a certain period determined by the income tax laws. The purpose of this document is to allow the shareholders to make an informed decision on the investment strategies of the business. For instance, if the business earned some profits but spent most of its revenues on buying property, there would be a problem if the shareholders approve of this purchase because they think the income earned can compensate for the expenses they have incurred. The income summary will help them see that their investment will not be sufficient to cover all the costs.
Most businesses prepare their income summary on the last day of the fiscal year, which is usually April 30th. However, some companies have their income statements done several months before the end of the year so as to take advantage of any tax write-offs or credits that were applicable in the previous year. Usually the income statement is prepared according to the type of business: a manufacturing firm will have a different income statement than an advertising or services unit. If you want to prepare your own income summary, you need to follow the instructions that are given to you on the income summary that came with your check.
The income summary can be prepared in two ways: on the income statement itself or on the temporary account. Preparing your own income summary on the income statement is pretty easy but it requires information that is not readily available to most people. For example, you would need to know the original price of each asset, its average sell-through rate over the period of time and the total number of days that the assets have been held for sale.
Preparing an income summary on the temporary account, on the other hand, can be more complicated since you would need to provide information on the revenues generated from the sale of each asset, its cost, the depreciated value and its net worth. This could take a lot of time and if you don’t have the detailed information, you might not be able to determine which assets generate the revenues and which don’t. Thus, your summary may end up being inaccurate. Also keep in mind that the revenues and expenses that appear on the statement of earnings do not necessarily match the amounts recorded in your books.
Most people do not make a consistent effort to track their income summary or the temporary account. For them, the income statement and the profit and loss statement are sufficient for their daily operations. However, it is important to track both of these accounts so that you will be able to see whether your company is indeed making a profit. By tracking the income summary and the temporary account you will be able to see whether your business is generating enough revenues to cover the costs of doing business and to cover your expenses as well. If you are not able to do this, perhaps you should think about changing your business model or revamping your operations.
Income summary and other non-operating expenses are required by every public company that files its annual report. Generally, these forms are prepared after the accountant has provided all the information necessary to calculate the income and the cost of doing business. However, many companies prefer to prepare these reports manually since it can save them a lot of time. If you are going to use the income summary for calculating the non-operating income and the expenses incurred for the operating business, then it is important to make sure that you have prepared the report correctly.
The income summary provides an overview of all the revenue accounts that have been generated during the period and provides a summary of all the expenses incurred during the period. The important items included in this type of report are: revenue items including: sales and expense items; Accounts payable; Deferred revenue; and Accrued expenses. The revenue accounts that get more detailed in the income summary are: Accounts receivable; Accounts payable plus Bad debt and Patent and Trademark income. Generally, it is the number of revenue items that gets the better attention from the accountant compared to the other account types. This is because the income statement and the income summary provide similar information but only the numbers that are contained in the former type provides the interpretation that the accounting procedures used do not support the data that is provided.
The expenses incurred are described in the income summary as well, with the main difference being that the information in the income summary is less detailed and is considered as an itemized deduction rather than an accounting procedure or document. In addition to the expenses that are recognized as a revenue item, the income summary also includes the cost of good sold, property and equipment purchased and depreciated property, expense payments made, property leases, and other direct payments received. As previously stated, it is the cost of good sold that tends to be negatively affected by inventory reductions and vendor price reduction because of timing issues. The accounting procedures for determining the amount of an expense account is different when it comes to the tax reporting because of the different income tax treatment of revenue and expense accounts. In this case, it is best to consult your CPA or certified public accountant for more detailed guidance.