As an entrepreneur, you’re driven and will do whatever it takes to meet your goals. However, knowing how to meet the short objectives along the way will help immensely. If you’re unfamiliar with how income statements work, here is a quick break down.

Start with the revenue you have generated from selling your products or services. This is commonly known as the “top line” for a company. Below the income, you should account for all costs associated with your business. This includes manufacturing costs, administrative expenses, and general fixed costs (rent, office utilities, insurance, etc.). These would be your Cost Of Goods Sold or “COGS” as they teach in some business classes.

The next item below your COGS is depreciation, which is also part of your balance sheet. If you’re unfamiliar, depreciation is a measure of how much value your assets lose over time.  After your depreciation of assets, you will list out taxes paid as well as interest expenses. Interest expense is the interest you paid on any loans you have accrued.

After you have listed these expenses and deducted them from your revenue, you will have your net income.

These are just the basics of an income statement. If you have any further questions and you’re an AFEUSA member, you can utilize our Member Forums where a variety of fellow entrepreneurs can help guide you through the process.