Creating financial reports is neither quick nor easy. Gathering records and data inputs from different ledgers, double-checking them and, finally, getting them reviewed by multiple eyes and ears—all while working towards tight deadlines—requires patience and close attention to detail.
This painstaking work is worth the effort because of how important it is to the business, but it doesn't have to be a grind.
Here you’ll learn how best to prepare an income statement in a way that saves your team time and effort, and how our automated platform can help you prepare financial statements.
What is an income statement?
An income statement is one of four key statements used to understand a business’s financial position. It looks at total revenue, expenses, profits and losses (which is why it’s also called a profit and loss or PL statement).
Essentially, these statements reveal what’s going on between business balance sheets. Each report includes all revenues, expenses, gains, and losses, categorises and adds them together, and calculates net income.
The reporting period is usually monthly, quarterly or annually for public companies.
What income statements do (and don’t) tell you
A typical statement calculates:
- Revenue: how much money is earned from sales
- Expenses: the cost of keeping the business running, e.g. rent, bank charges, office supplies
- Costs of goods sold (COGS): the true cost of producing and selling goods, including labour
- Gross profit: total profit after subtracting COGS
- Depreciation: any lost value in assets over time
- Income before taxes: income minus costs, except before applicable taxes are excluded
- Net income: Total income after subtracting all costs
- Earnings per share: income divided by all outstanding shares
- EBITDA: business earnings before interest, depreciation, taxes and amortisation
Income statements don’t distinguish cash and non-cash payments, receipts and which revenues were paid out from funds (disbursem*nts).
The most important statement figures are the gross profits, operating income and income before tax. Earnings before interest, taxes, depreciation and amortisation (EBITDA) are not always included.
Why is the income statement important?
Income reports are one of four types of financial statements involved in a business’ financial reporting and financial statement analysis. It’s combined with balance sheets, cash flow statements and shareholder equity statements.
Business planning
Knowing where revenue and costs are coming from isn’t enough on its own to create a financial strategy. But it’s vital for planning since all other reports, presentations and downstream analyses rely on income reports.
Compliance
Accurate income reporting is also important to a business’ compliance processes. Auditors look at these, along with other supporting documents, to check that they paint a credible picture of the company’s financial situation.
Risk management
Income reports let stakeholders pick up on any errors or aberrations that suggest finances have not been handled correctly, and can even help identify security and data breaches.
How automated tools assist income reporting
Instead of manually finding, organising and cross-checking data in your financial statement preparation, automated financial reporting software can bring efficiencies to the process, reduce the manual reporting burden and free up time for value-added initiatives.
Automation not only makes data retrieval a lot easier but it also lets you transform, summarise and slice data from millions of spreadsheet rows immediately. Rather than simply compiling information, this allows you to perform financial statement analysis.
Preparing an income statement with Workiva
Workiva’s automation and AI tools can enhance speed and flexibility through each key phase of the reporting period:
1. Calculating revenue
Data pulled together in revenue reports is frequently shared between different formats, databases and reports. Some data points may even get translated into different values, or even languages—if you have revenue streams in different countries.
The Workiva platform lets you link data and automatically update it across every instance inf your files, maintaining consistency for revenue reports and other documents. Teams can then spend less time checking and cross-referencing the information in the statement.
2. Determining COGS and expenses
When calculating the costs scattered throughout the supply chain, payroll and other charges, Workiva lets you automatically record, categorise and determine the direct and indirect costs of goods and services sold within one integrated system. This cuts back on manual data entry errors and aggregates numbers much faster.
3. Calculating gross profits
Working out the gross margin or gross profit involves subtracting COGS from total revenue, which is used to gain insight into business performance. On the Workiva platform, this process is automated for greater accuracy to paint a clearer picture of profitability, but teams can also extend financial performance analysis by looking at trends and comparing ratios over different periods.
4. Tracking operating expenses
With greater accuracy, automated platforms can improve the efficiency of recording and organising data into different periodic expenses. By integrating with other accounting systems into one unified ledger, the depreciation, insurance and other recurring costs from set time periods are automatically added to the statement.
5. Calculating pre-tax income
Working out gross income or the gross margin can be complicated, and so having it carried out automatically saves time—especially now that operating expenses are tracked more accurately.
But the Workiva platform also monitors and adjusts the figures in real time, so there will be no need to go back and make changes if new data has been missed during manual entry or added at the last minute.
6. Adding tax
Workiva is the only assured integrated reporting platform that connects financial reporting, GRC and ESG. It applies all the relevant and up-to-date tax information to the income statement so that the burden is not on the team having perfect knowledge of all regulations.
7. Calculating net income
Once applicable taxes are automatically subtracted from gross income, you arrive at net income. At this point, all calculations have been carried out in real time, with regular data refreshes and preventive controls in place via the platform.
Financial reporting is an increasingly integrated practice, and the company’s net income data is used for multiple purposes: press releases, analyst decks, letters to employees and more. It also has significant value for consumers, investors and stakeholders.
Net income reports are also becoming intertwined with ESG, and serve as an important tool in driving sustainable growth and value.
8. Reviews
Automating the audit process, sign-off and reporting dates are also indicators of a well-managed business. This helps to drive trust and confidence in the run up to publishing financial statements.
Since all calculations are precisely broken down and viewable on one shared system, Workiva’s automated platform helps deliver value to integrated teams reporting from multiple locations.
Teammates can review the statement and resolve any comments within the platform, rather than risk any questions being buried in email threads.
Beyond automated income reporting
Income statements are just one cog in the reporting process that gives a business a full account of its financial health.
Workiva’s platform lets you easily pull data and commentary, and connect inputs from your systems to your financial statements. Here’s how:
Consolidation
Automatically retrieve all the data you need from your accounts—regardless of the number of ledgers—and consolidate it into a single spreadsheet. You can ensure everything comes together smoothly and clearly by connecting data directly from ERPs to your reporting documents for accurate and trustworthy financial analysis.
Governance
With our secure platform, only the right people (with the right permissions, of course) get access. Senior team members can assign edit or view access privileges to each report contributor, as well as internal and external auditors, right down to each cell.
Collaboration
Perform your entire preparation as a team, at the same time and in a single place. Workiva’s platform constantly refreshes data in real time. At the push of a button, you can enable live commentary between contributors and stakeholders, and allow them to see and share updates.
Try the Workiva platform yourself! Request a demo to see how Workiva can help streamline your financial reporting by automating tasks and eliminating the need for time-consuming manual data entry.
