What is the income statement and how to read it?

Understanding the income statement is an important skill for an entrepreneur. All cash flows generated or consumed by the company's business move through accounting to the income statement (or to the balance sheet if we are talking about double-entry accounting). By understanding the operating principle of the calculations, you will be able to form a more comprehensive picture of your company's financial situation.

The calculations describe the company's financial situation

The income statement describes the income and expenses of the company's business over a certain period of time. When you sell products or services, your income increases, while, for example, when you buy raw materials or office supplies, your expenses increase. In UKKO light entrepreneur with business ID- service, income and expenditure are always recorded based on the payment date.

The balance sheet describes the company's assets, liabilities and equity at a certain point in time. Assets mean, for example, inventory, liabilities can be a loan taken from a bank, and equity can be the share capital of a limited company. A balance sheet is not actually formed in simple accounting.

What is the structure of the income statement?

In the income statement, the company's income and expenses are broken down into different main categories. These categories include:

• Turnover, all sales accounts.
• Materials and services purchased for sale.
• Personnel costs, i.e. salaries and pension costs.
• Depreciation and depreciation of equipment.
• Other business expenses that arise from the business, but which are not directly sold to the customer.
• Financial income and expenses.
• Advance taxes.

The main categories are divided even more precisely - for example, "other business expenses" can include e.g. coffee supplies, office supplies, marketing costs and office rental costs. In general, at UKKO light entrepreneurship with business ID -service, expenses are recorded with the accuracy that needs to be itemized for the tax return. Normally, small entrepreneurs do not need more detailed data about their company's financial situation.

When all the income and expenses of the financial year have been added together, the final result is the profit or loss of the financial year. This is the famous "below the line" section. This portion below the line is the entrepreneur's salary, on which the entrepreneur must pay advance taxes.

You can view your company's income statement from the "reports" section of our service. There you can find your income statement in the "financial periods" section. You can also view your VAT reports from the same place.