How often does your accountant force you to look at your income statement? Most of my clients are more interested in their tax return than their income statement. I tell them the income statement is the report card for their business year. It shows them whether they made money or not. And given that the goal of a business is to make money, paying attention to this statement is recommended.
There are a few steps to reviewing your income statement:
- Look at the bottom of the statement. Is there a net income? – If so you made money. If there is a net loss you lost money.
- Look at your sales. Are they higher than last year or lower? Which categories have increased? Does that make sense to you?
- Look at the expenses. How do they compare to the prior year? Are there any expenses there you do not understand? Are there any expenses you expect to see but you don’t? That’s it.
Reviewing the income statement is important. Your accountant has prepared the statement from the information you gave them, but no communication is perfect. You should review the statement to make sure you understand how the net income figure was determined. And if all else fails to interest you, remember the income statement is the starting point for your tax return, so it does matter.