Part two will cover the chart of accounts for the income statement. The income statement is the report that tells you if your business was profitable of not for a specific time period. The sections of the income are broken up into a few sections. Income, cost of goods (COGS), and expenses.
The income will be broken out to the categories of your cash flow. These are either called revenue or sales depending on what kind of industry you’re in. Service industries income is call revenue and retail industries income is called sales. The categories of income should be identifiable sales categories.
The COGS should be in line with the sales categories. For example if you are a pizza shop and you have a sales category for pizza and beverage sales you should have a COGS category for pizza and beverage. This will allow you to see and answer the question of how much does it cost me in direct expenses to produce pizza or beverages.
The next section are your other expenses that you incur that are not directly for the production of goods but are necessary to run your business. For example categories such as rent, utilities, bad debt, office supplies, cleaning supplies etc.. All of these expenses can be analyzed by either a percentage of sales or fixed dollar amount. The nature of what the expenses are will determine how you should analyze them. For example if your rent will not fluctuate if you have more sales than you should view that as a fixed cost. However, if you go through more cleaning supplies if you are busier than you can estimate your cleaning supplies by your percentage of sales.
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