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.
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