Creating Income Statements part - II

Please read part-I before reading further. This article will cover Operarating expenditure and Other incomes.



Operating Expenditures

Have this mental map,

Operating expenditures is all about dividing your expenses as much as possible and making sure to continue mapping your expenses in whatever you divided in future years.

Basically, we sell products or services to generate revenue. Operating expenses include all the costs you incur except the direct cost involved in buying goods. So splitting your operations is the key step.


For example,

  • We spend on Advertising/Sales promotion

  • We took loan/OD - We pay Principal and Interest

  • We may have not repaid the loan for the particular period - Overdue(Accumulated Principal and Interest)

  • India is a land of corruption and commissions - Corruptions and Commissions(not to be disclosed to authorities)

  • We use fixed assets(computers, furniture etc.) - They can't be used for an indefinite time. They will have to get replaced after their shelf life. For that, you need to reserve or set aside some cash as an expense - This is called Depreciation.

  • If you contribute Provident Fund to your Employee - Provident Fund

  • Auditor fees

  • Any licenses or renewals from the government

  • Rent

  • Repair and maintenance for your machines or any equipment

  • Travel allowances for your salesperson

  • Utilities - EB,gas,water etc

  • Vehicle Expenses - Petrol, Service cost etc

  • Bonus - For festival days



Note: Add anything other than your planned expenses as Miscellaneous expense

When you add all operating expenses, we get Total Expenses.

Net Operating Income = Gross Profit(Loss) - Total Expense = 157500 - 45750 = Rs.111750


Other Incomes

This is simple. Whatever income you earn other than the sale of your products or services, it will be identified as Other Incomes

It can be a sale of Assets(like building, equipment, computer, car etc) or Interest income from the loan you lend to others.


Net Income = Net Operating Income + Total Other Income

Et voila! We generated Income Statement for your business. I think it is a simple thing that needs some time to think at first and then it keeps rolling.

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Disclaimer: This article is me speaking to me through this blog! Short Intro: If you want to innovate in a particular field, you need to understand how things work in the first place. Innovation is a