How to calculate a missing account on an income statement

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A company’s income statement shows how much money it made as revenue or revenue, how much it spent on expenses, and how much profit or loss – also called net income – was. generated during a given period. As a general rule, the income statements are consulted monthly, quarterly and / or annually.

While the bookkeeping that determines whether a given transaction should appear as an expense, income, or other entry can be complex, the math required to read the income statement is a simple addition and subtraction.

To calculate a missing account on an income statement, we must first understand how to read one
The income statements are meant to be read from top to bottom. This organization is designed to match the mathematics used to calculate net income, the “bottom line”. First, the income statement will show all the income for the given period, then subtract all the expenses, and finally end with the profit or loss of the business. Income minus expenses equals net income

To make it even easier for you, most income statements include subtotals along the way so you can clearly see how all of the individual items add up as you move down the page.

When you read an income statement, you have to start at the top of the page and digest the income and sales of the business first. If they provide details on their various lines of business or products, note which ones generate the most sales and how they combine to form total sales for the company.

After sales, some businesses will have a section for “cost of goods sold”. This section represents the expenses directly related to the production of the product sold. For example, a furniture maker would include the cost of lumber, nails, and labor directly related to the production of each piece of furniture sold during that time period. At this point, the income statement will show you a subtotal called gross profit. Gross profit is the total revenue subtracted from the cost of goods sold.

Then move on to operating expenses. This section will include accounts such as marketing, wages and salaries, research and development, and installation expenses, among others, not directly related to the actual production of the product.

Many times these common expenses will be consolidated into one account called “sales, general and administrative expenses”.

At the end of the operating expenses section, there will be another subtotal, this time for total expenses. Total expenses do not include expenses already recorded in cost of goods sold.

Below the operating expenses will be a few final items that accounting rules require to be set apart. These miscellaneous items are generally grouped under the heading “Other income” or “Other expenses”. Taxes are another major expense that will be found in this area at the bottom of the income statement but above the net income.

The very “bottom line” of the income statement is profit or loss. Net income is calculated by adding up all of the company’s sales and then subtracting all of its expenses.

Calculation of net income

Sales

Add

Cost of goods sold

To subtract

Operating Expenses

To subtract

Other income

Add

Other expenses

To subtract

Taxes

To subtract

Calculation of the missing account
With this understanding, calculating a missing amount on an income statement is quite easy. Everything is addition and subtraction.

If the income statement includes subtotals like “Total Expenses,” for example, the easiest method is to use the number of subtotals where our missing account is and subtract the other accounts in that section. The answer to this subtraction problem is the value of the missing income statement.

Consider this example:

Operating Expenses
Advertising $ 150,000
Salaries and treatments $ 75,000
To rent $ 10,000
Marketing $ 100,000
Utilities $ 3,000
Contract labor $ 25,000
Total expenses $ 363,000

To find the right number of wages and salaries, we start with the subtotal of total expenses and subtract all other expenses. In this problem, we are missing the wages and salaries account from the operating expenses section of the income statement. We have omitted the other sections of this particular income statement because we do not need them to calculate this missing account. We only need the specific section where the missing account is.

Therefore, the missing value for wages and salaries in this example is $ 75,000.

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