Service companies have the most basic income statement of all the types of companies. Since service based companies do not sell a product, the income statement will not contain cost of goods sold. Therefore, the income statement will be a basic breakdown of income and expenses.
Begin with income. Then subtract all operating expenses. The difference between income and operating expenses is operating income. In this case, all expenses are period costs. There are no product costs associate with a service company.
In this example, I have indented all of the operating expenses. This allows the reader to easily see the individual operating expenses. The operating expenses in this case were listed from largest to smallest. That makes it easy for the users of the statement to see the largest expenses and those that make the biggest impact on the bottom line without having to search for them.
The total operating expenses have been pushed out to the third column to show the reader that the $80,200 has been subtracted from the $100,000 to obtain operating income of $19,800. Use underlining in your spreadsheet to show that a computation is being performed.
The service company income statement is very basic. Just remember the basic formula for income statements: Revenue – Expenses = Operating income.
Kristin is a Certified Public Accountant with 15 years of experience working with small business owners in all aspects of business building. In 2006, she obtained her MS in Accounting and Taxation and was diagnosed with Hodgkin's Lymphoma two months later. Instead of focusing on the fear and anger, she started her accounting and consulting firm. In the last 10 years, she has worked with clients all over the country and now sees her diagnosis as an opportunity that opened doors to a fulfilling life. Kristin is also the creator of Accounting In Focus, a website for students taking accounting courses. Since 2014, she has helped over one million students succeed in their accounting classes.