Income Statements: How Much Is Too Much?
Often clients ask how much detail they need to include on an income statement. My answer is less is always more. That being said, detail is important because it enables you to make smart decisions for your business. An income statement is used not only to show how your financial year is looking, but also to assist in planning and forecasting. A good income statement certainly needs detail, but it also needs to be readable and useful.
Let’s start by looking at the income section. Income is a broad category, so you may want to split it into different accounts while making sure you keep all “like forms of income” in the same account. For example, if you are a brewery that sells beer and snacks in your taproom, these can both go under a general taproom sales account. But if you also sell wholesale, you would want to create a separate category for those sales.
The expense section is often where I see companies going overboard with multiple accounts. Before setting up your expense accounts, decide what information is important to your decision making. If you use software such as Xero, they will have a general set of accounts template. They may not all apply to your company, but it’s a good place to start. You can learn more about Xero here. Make it simple at first. In the future you can always add a new account if you don’t already have one that makes sense. Also keep in mind that you don’t need a separate line item (an entry that appears on a separate line in a bookkeeping ledger or a fiscal budget) for every type of transaction. For example, you don’t need a separate account for each type of utility. If you need data for a specific vendor, you can always run a report tailored to fit your needs.
At the end of the day, what matters most is creating an income statement that you can easily read and understand so you can make the best decisions for your business.