How to Prepare an Income Statement Philippines (w/ Example)

Are you a business owner or someone who’s been asked to prepare an income statement in the Philippines? Or an individual who needs a step-by-step guide on how to make an income statement? Then, you are in the right place.

In this post, I will show you how to prepare an income statement in the Philippines with an example. Also, I’ll explain what an income statement in the Philippines looks like, why it is significant, and what you should include to prepare one. So, if you’re ready to learn more about an income statement in the Philippines, let’s get started!

How to Prepare an Income Statement in the Philippines (with Example)

1. What is an Income Statement Philippines?

An income statement is one of the financial statements in the accounting cycle, also known as Comprehensive Income. Other statements are the balance sheet, statement of changes in equity, and cash flow statement. The accountant has usually created and audited it.

Moreover, it is also called a profit and loss account or P&L statement that shows how much revenue (sales) and expenses (costs) are generated during a specific time frame. For example, for the third quarter of 2022, your company earned P1 million in revenue but had P500,000 in expenses. It simply means that you have P500,000 in net income for this quarter. In addition, profit and loss statements are prepared on a monthly or yearly basis to track the progress of business financials.

2. Why is an Income Statement Important?

Just like other financial reports, P & L statements are important financial reports to prepare in the Philippines. Why? Some reasons are the following:

Summarize the financial performance of a company over a given time.
Provide a snapshot of a company’s profitability by calculating its net income or earnings.
Disclose the business operation’s outcome, whether it’s good (income) or negative (loss).
Used to assess whether or not an organization can afford to make investments in its future growth.

“A firm’s income statement may be likened to a bikini – what it reveals is interesting but what it conceals is vital.” – Burton G. Malkiel

3. Elements of an Income Statement

Revenue – the total amount of money that a company has made in a certain period. It is calculated by adding all the sales or services that a company has made over a certain period. Then, subtract all the expenses.

The primary sources for a company are:

– Sales of goods and services to customers

– Interest income from investments

– Dividends from investments

Expenses – any costs incurred in the operation of a business to generate sales. It is significant to track because it can affect a company’s profitability, and some expenses are tax deductible.

Some common types include:

– Cost of Goods Sold

– Direct Labor Costs

– Marketing Expenses

– General and Administrative Expenses

Profit (or Loss) – one of the most important aspects of a company’s financial health. Profit is the difference between total revenue and total expenses, which can be found on a company’s income statement.

When a company’s expenses are higher than its revenue or sales, then the difference will be tagged as a loss as it shows a negative figure.

Sample Income Statement of a Sole Proprietorship in the Philippines

Step 1: Get the needed data for the Income Statement Philippines Example.

Prepare the income statement Philippines from the adjusted trial balance. It is where you may gather the pertinent information, much as other financial reports.

Adjusted Trial Balance of an Income Statement Philippines Example

Step 2: Prepare the Income Statement Format Philippines.

Basically, an income statement includes:

Company’s or Proprietor’s Name on the first line of a heading.
Income Statement (name of a financial report) on the second line of a heading.
The Period Ended on the third line of a heading.
Elements as mentioned above (revenue, expenses, profit or loss).

Format of an Income Statement Philippines Example

Step 3: Identify the total revenues of your business.

Check from the trial balance all of the listed revenues or income.
Put it in your income statement format prepared on the part of revenue.
Calculate the total revenues and put a single line on the last one entered to emphasize the total gross profit.

Step 4: Classify the total expense of your business.

Know from the trial balance all of the listed expenses.
Enter your income statement format prepared on the part of the expense.
Compute the total expenses and put a single line on the last one entered to highlight the total costs incurred.

How to Prepare an Income Statement in the Philippines (with Example)

Step 5: Compute the Income before Tax.

Determine the income before deducting tax expenses.
Exclude the income tax expense to get your income before tax.
Deduct the total revenues and total expenses.

Step 6: Determine the Net Profit or Net Loss.

Subtract the income tax expense from the total income before tax to determine whether there is a net profit or loss.

There you have it, a sample illustration of how to prepare an income statement in the Philippines. Your step-by-step guide to creating an income statement in the Philippines. Did you know that companies and businesses are not the only ones that can prepare an income statement in the Philippines but you can make one as well? You can prepare a personal income statement too. At some point, you need to know how much is your net income after all the expenses you have incurred in a month.

Same with the balance sheet or the statement of financial position, you can make a personal one too. You will determine what are your assets and your liabilities. By doing so, you will get your net worth which measures your overall financial progress toward your financial goals. Have yourself understand these financial reports because surely you can apply them too in your financial statements and can contribute to making investments.