As a business owner, there are many important aspects of running a business, and tax preparation is one of them. It’s critical to keep track of your income and expenses throughout the year to file an accurate and complete tax return.
In this blog post, we will discuss what an income statement is and how it works. We’ll also talk about expense reports and the factors that go into creating them. Keep reading to learn more.
Income Statement: Explained
The income statement is one of the 3 important financial statements used to report a company’s financial performance over a specific accounting period. The income statement goes along with the balance sheet and the statement of cash flows.
The income statement—also called the profit and loss statement (P&L), focuses mainly on a company’s revenue and expenses during one specific period. To decide whether investing in a company is worth it, you should learn how to read its income statement.
Importance Of Income Statement For Businesses
The income statement is important for businesses because it tells you how much revenue the company earned and what expenses it incurred during the period. The net income (or loss) figure at the bottom of the income statement shows whether the company made or lost money during that period.
A business needs to make a profit to survive in the long run. If a company consistently makes a loss, it will eventually go bankrupt. That’s why an income statement is an important tool for businesses—it helps them track their progress and ensure that they are making a profit.
Uses Of Income Statements
There are 2 main uses of income statements:
N°1 To track a company’s financial performance over time: This is done by looking at net income (or loss) figures for different accounting periods. If you see that a company’s net income increases over time, the business is doing well.
N°2 To compare a company’s financial performance to its competitors: This is done by looking at different companies’ income statements and comparing their revenue, expenses, and net income (or loss) figures. Doing this lets you know which company is more efficient and profitable.
How Does an Income Statement Work?
Here’s a guide on how the income statement works:
- The income statement works by starting with a company’s revenue. This is the money that the company has earned from selling its products or services.
- From there, the company subtracts its operating expenses. These are the business’s costs, such as rent, utilities, salaries, etc. The resulting number is the operating income.
- Next, the company subtracts its non-operating expenses. These are costs unrelated to the business’s day-to-day operations, such as interest on loans or losses from investments.
- The resulting number is the net income. This is the income statement’s bottom line and shows whether the company made a profit or a loss during the period.
What Is An Expense Report?
Now that we’ve discussed income statements let’s talk about expense reports. An expense report is a document that businesses use to track their spending. It typically includes all the expenses incurred by the business over a certain period, such as a month or a year.
Expense reports are important because they help businesses keep track of where their money is going. This information can be used to decide how to cut costs and save money.
7 Benefits Of Implementing Expense Reports In Your Business
There are many benefits of implementing expense reports in your business, including:
N°1 Helping You Stay Organized
Expense reports can help you keep track of all your business expenses in one place. This can be helpful when it comes time to prepare your taxes or file for insurance reimbursement.
N°2 Tracking Spending
Expense reports can help you track your spending and see where your money is going. This can help you cut costs and save money.
N°3 Making Budgeting Easier
Expense reports can help you create a budget for your business. Having a budget can help you stay on track with your finances and ensure you’re not overspending.
N°4 Fostering Transparency
Expense reports can help create transparency within your business. This can be helpful if you have employees responsible for spending company money.
N°5 Saving Time
Expense reports can save you time by automating the expense tracking process. You won’t have to manually enter every expense into a spreadsheet or bookkeeping software.
N°6 Reducing Fraud
Expense reports can help reduce fraud by requiring employees to submit receipts for all expenses. This documentation can help you catch any fraudulent activity and prevent it from happening in the future.
N°7 Improving Employee Morale
Expense reports can improve employee morale by reimbursing employees for business-related expenses. It can show your employees that you are invested in their success and willing to help them cover the costs of doing business.
What Is On An Expense Report?
An expense report is usually a spreadsheet, and it commonly includes the following items:
- Your name.
- A list of expenses.
- Date range or period.
- The name of the company.
- An area for the manager to sign off on the expenses.
- Columns such as date, description or explanation, code, and category columns such as “fuel or mileage.”
6 Successful Steps To Create An Expense Report
Many different factors go into creating an expense report. Here are 6 steps to creating one:
N°1 Choose A Template
You may use a template or expense-tracking software to prepare an expense report. It might be difficult to create an expense report from the ground up. You’ll need to download a template to construct an expense report in Excel, PDF, Word, or any other popular app. Here are some options:
- Template.net has a monthly expense report template.
- Template.net also has free downloadable expense report templates for many formats.
- Microsoft Office has a variety of free downloadable expense report templates for Excel.
- Vertex42 has an expense tracker template that can be used in Google Sheets or downloaded in Excel or OpenOffice.
You can quickly and easily make this template your own by adding your company name, the date range you’re reporting on, and your name. As your business grows and you have more expenses to track, save time by upgrading to expense-tracking software. You can link your business bank account so that expenses are added automatically as they come in, or use the corresponding app to photograph paper receipts for fast, easy uploads.
N°2 Edit The Columns
Your expenses should be representative of those in your company. You’ll need a “travel and meals” column if you frequently hire clients for coffee or supper. If you own a car or truck for business, you’ll need a “car and truck expenses” column.
Expense reports help businesses deduct certain expenses by separating them into categories, such as rent. Business owners can ensure they comply with IRS regulations by providing a breakdown of totals by category.
The categories include:
- Rent or lease.
- Office expense.
- Travel and meals.
- Taxes and licenses.
- Car and truck expenses.
- Repairs and maintenance.
- Employee benefit programs.
- Pensions and profit-sharing plans.
N°3 Add Itemized Expenses
For each expense, add a new line and include as much information as possible. Be sure to note the client and project the expense is for to ensure accurate tracking. Enter your expenses in chronological order so the most recent expense appears last. Include the amount of each expense, tax included.
N°4 Add Up The Total
On an expense report, each category has a subtotal and then a total of all costs. If you want to see how much money you spend in each area:
- Add this function to your expense report template.
- Calculate the total.
- If you’re reimbursing someone, make any prior over or underpayments up or down
N°5 Attach Receipts (If Necessary)
Employees making claims for reimbursement will have to provide receipts to support them. If you print the expense report, keep the receipts attached to keep the original documents. Scan the receipts and attach them as PDF files if submitting the expenditure report electronically. Only then an employee may get compensated.
Even if you’re a business owner producing an expense report to keep track of spending, you’ll need the appropriate receipts or invoices. If you deduct your expenses from your taxes, it’s a good idea to have a copy of them on hand in case you get audited.
N°6 Print Or Send The Report
Now that you have entered all the information, you can print your expense report to submit for reimbursement or approval. If you want to send it electronically, export it as a PDF or Excel spreadsheet and attach it to an email.
Nesso Group Helps You With Your Tax Services Needs
Managing your taxes can often be daunting and difficult to discuss. If you’re looking for help with your taxes, Nesso Group in Connecticut can assist you. At our company, we strive to create a secure and comforting work environment where everyone is heard. Our team will always be here to provide guidance and support as you pursue your professional goals.
We offer a variety of tax services to businesses and families. Nesso Tax is our state-of-the-art online tax preparation service. We can help you file your taxes quickly and easily from the comfort of your own home. Get in touch with our team today!