2. Components of the statement of financial results and their calculation

2. Calculate Total Revenue

Once you know the reporting period, calculate the total revenue your business generated during it.If you prepare the income statement for your entire organization, this should include revenue from all lines of business. If you prepare the income statement for a particular business line or segment, you should limit revenue to products or services that fall under that umbrella.

3. Calculate Cost of Goods Sold (COGS)

Next, calculate the total cost of goods sold for any product or service that generated revenue for your business during the reporting period. This encompasses direct and indirect costs of producing and selling products or services, including: Direct labor expenses

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  Material expenses
  
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  Parts or component expenses
  
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  Distribution costs
  
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  Any expense directly tied to the production of your product or service
  

4. Calculate Gross Profit

The next step is to determine gross profit for the reporting period. To calculate this, simply subtract the cost of goods sold from revenue.

5. Calculate Operating Expenses

Once you know gross profit, calculate operating expenses (OPEX). Operating expenses are indirect costs associated with doing business. These differ from the cost of goods sold because they’re not directly associated with the process of producing or distributing products or services. Examples of expenses that fall under the OPEX category include:

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  Rent
  
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  Utilities
  
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  Overhead
  
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  Office supplies
  
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  Legal fees
  

6. Calculate Income

To calculate total income, subtract operating expenses from gross profit. This number is essentially the pre-tax income your business generated during the reporting period. This can also be referred to as earnings before interest and taxes (EBIT).

7. Calculate Interest and Taxes

After calculating income for the reporting period, determine interest and tax charges. Interest refers to any charges your company must pay on the debt it owes. To calculate interest charges, you must first understand how much money you owe and the interest rate being charged. Accounting software often automatically calculates interest charges for the reporting period. Next, calculate your total tax burden for the reporting period. This includes local, state, and federal taxes, as well as any payroll taxes.