Creating an Income Statement

[twelfth_hour]

Hi all,

I'm entirely new to business, and I'm trying to look at the finances for a potential business idea.

I'm currently trying to produce an income statement. As I understand it, the income statement adds up all the revenue from sales and other sources , subtracts my costs and comes up with a net income figure.

I am producing this for year 1, year 2 etc..

My question: there are some set up costs that will only apply to the first year - such as buying some start up equipment for example. Do those costs go in the income statement or do these one-off costs go in a different document? In other words, Is the income statement only for regular ins and outs?

Thank you in advance.

[CI_HK]

hi, that s a good observation for being new in the field. I work as accountant, answering your question, maybe i m wrong but it seems that you refer to equipments, if they are fixed equipments such as for ex. computers, just an example, you need to record those expenses under the balance sheet rather than the IS, as considered assets, be minded on this point.

Afterwards, in years, depreciation needs to be calculated on it.

For others startup expenses which need to go under the income statement, for example, as i mostly manage startup companies accounts here in hong kong, i record on the IS under administrative/general expenses, all the company main incorporation costs, which have been held only in the first year of course, and i use the voice ''preliminary expenses'', only for the first year.

Hope i gave some help.

[CI_HK]

hi, that s a good observation for being new in the field. I work as accountant, answering your question, maybe i m wrong but it seems that you refer to equipments, if they are fixed equipments such as for ex. computers, just an example, you need to record those expenses under the balance sheet rather than the IS, as considered assets, be minded on this point.

Afterwards, in years, depreciation needs to be calculated on it.

For others startup expenses which need to go under the income statement, for example, as i mostly manage startup companies accounts here in hong kong, i record on the IS under administrative/general expenses, all the company main incorporation costs, which have been held only in the first year of course, and i use the voice ''preliminary expenses'', only for the first year.

Hope i gave some help.

[Kate Debitoor]

Hi twelfth_hour

The kind of costs you are referring to are fixed assets (sometimes called capital assets or long term assets). Fixed assets are assets which add value to the business over an extended period of time, such as machinery, computer equipment, or property.

Because these costs add value to your business beyond the first year, you should use depreciation to spread these costs over the entire period the asset adds value, rather than unfairly weighting the cost in the first year.

We have an article in our small business guide which can help explain assets and depreciation a bit further: https://debitoor.com/small-business-...d-amortisation

If hope this helped!

Kate | Debitoor accounting & invoicing software