An income statement, also known as a profit and loss statement or revenue and expense report, is a financial report that shows an association's income and expenses over a specific period, usually a fiscal year. The purpose of the income statement is to provide an overview of how much the association has earned (profit) or lost (deficit) during the period. It is a key part of the annual financial report and helps assess the association's financial performance.
7 steps
Here are the steps to create an income statement for an association:
Gather financial data: Collect all relevant financial documents, including receipts, invoices, bank statements, and any other records of income and expenses.
Categorize income and expenses: Organize income and expenses into different categories to make analysis easier. Common categories include membership fees, donations, event revenue, salaries, and operational costs.
Record income: List all income in the relevant category and total it to determine the overall earnings for the period. This includes funds from members, donors, sponsors, and other sources.
Record expenses: List all expenses in the appropriate categories and sum them up to calculate the total expenses for the period. Expenses can include event costs, administration, marketing, and staff salaries.
Calculate the result: Subtract total expenses from total income to determine the final result (profit or loss) for the period. This figure indicates whether the association has spent more than it earned (deficit) or earned more than it spent (profit).
Review and verify: Carefully go through the income statement to check for errors or missing entries. It is good practice to have an independent accountant or auditor review the statement for accuracy.
Include in the annual financial report: Once the income statement is completed and reviewed, include it as part of the association’s annual financial report, along with the balance sheet and any other required documents.
Why is the income statement important?
The income statement is essential for evaluating the association’s financial health and helps in making informed decisions about budgeting and future planning. Keeping accurate and detailed financial records ensures a reliable income statement.