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Small Business Income Statement Templates

Accountants have an ethical duty to accurately report the financial results of their company and to ensure that the company’s annual reports communicate relevant information to stakeholders. If accountants and company management fail to do so, they may incur heavy penalties. For the year ended December 31, 2016, McDonald’s had sales of $24.6 billion.11 The amount of sales is often used by the business as the starting point for planning the next year.

  • Once you’ve prepared your income statement, you can use the net income figure to start creating your balance sheet.
  • Cromwell holds a bachelor’s and master’s degree in accounting, as well as a Juris Doctor.
  • Although the business mileage deduction isn’t limited to sole proprietorships, sole proprietors often tend to overlook this deduction, thinking it’s insignificant.
  • The owner could have employees, and those payroll expenses would be shown on the income statement, but there is nothing for the owner.

However, the profits of the sole proprietorship are also the profits of the owner, as all profits flow directly to the business owner. If you want to start a one-owner business, the simplest and fastest way is through a sole proprietorship. It doesn’t require filing federal or state forms and has few regulatory burdens, making it an ideal way for self-employed people to start out. Working capital is calculated as current assets minus current liabilities.

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. Read our article on free small business expense templates to find additional resources and to get the most out of your small business budgeting.


Cromwell holds a bachelor’s and master’s degree in accounting, as well as a Juris Doctor. To have a more thorough look at how double-entry bookkeeping works, head to FreshBooks for a gallery of income statement templates. If you’re a Specified Service Business, the 20% deduction begins to phase out at an income of $182,100 (single filer) or $365,200 (joint filers). For a thorough breakdown of how the deduction phases out, check out our guide to the QBI deduction.

  • Accounting principles and procedures are relevant to all business activities, regardless of the type of business entity or the form of enterprise.
  • Here is a sample income statement of a service type sole proprietorship business.
  • To determine your taxable income, you must subtract other permissible, deductible expenses, as well as other deductions, which you also calculate on Schedule C.
  • Using the basic accounting equation, the balance sheet for Cheesy Chuck’s as of June 30 is shown in Figure 2.9.
  • Every time a sale or expense is recorded, affecting the income statement, the assets or liabilities are affected on the balance sheet.

Use the liabilities side to list everything the business owes, including accounts payable and personal loans taken out to finance business activities. A lender or potential business buyer may also ask to see a personal balance sheet reflecting personal assets you may be able to infuse into the business if you experience a cash flow shortfall. Although you should not post these tax payments as expenses, this does not mean your business cannot fund your tax payments. In fact, you should set aside a percentage of your business’s income to cover the sole proprietorship taxes due on the profit in your business. You should remember, however, that when you take money out of your business to pay your taxes, it will come out as an owner’s draw and not an expense. Sole proprietorship taxation is different from other business entities, like corporations, because the business itself is not taxed separately from the business owner.

However, a lender might be interested in the relationship between a sole proprietor’s business and personal assets. By examining a sample balance sheet and income statement, small businesses can better understand the relationship between the two reports. Every time a company records a sale or an expense for bookkeeping purposes, both the balance sheet and the income statement are affected by the transaction.

Manage Income Statements and Drive Success with Smartsheet for Small Businesses

The amount of taxes you owe will be based on the combined income of both Form 1040 and Schedule C. If you have employees, there will be other forms to fill out. To start a sole proprietorship, you generally have to launch your business. Depending on your business and local regulations, you may need to apply for a permit or license with your city, county, or state. If you plan to hire employees, you will need an employee identification number from the IRS.

Accounting Difference for a Partnership & Corporation

The owner could have employees, and those payroll expenses would be shown on the income statement, but there is nothing for the owner. A sole proprietorship has no separation between the business entity and its owner, setting it apart from corporations and limited partnerships. One of the biggest differences between doing your taxes as a sole proprietor and doing them as an employee is that you have to report your business profits and losses on accounting cycle steps an extra IRS form called Schedule C. Sole proprietorships are the most basic business structure in the United States—they don’t require paperwork, a separate bank account, or filing fees to get started. They’re also the default business structure for individual-owned businesses. For example, if you started up a side gig as an independent contractor doing copywriting this year, the IRS automatically considers you to be a sole proprietorship.

Financial Statement of a Sole Proprietorship

Second, we are ignoring the timing of certain cash flows such as hiring, purchases, and other startup costs. In reality, businesses must invest cash to prepare the store, train employees, and obtain the equipment and inventory necessary to open. In the example to follow, for instance, we use Lease payments of $24,000, which represents lease payments for the building ($20,000) and equipment ($4,000).

In addition, the stockholder working in the corporation earns a salary of $80,000. The owner of the sole proprietor works as hard, but instead of a salary, draws $80,000 for personal use. The regular corporation pays a $10,000 cash dividend and its income tax rate is 15%. Compile your sole proprietorship’s balance sheet to express your personal investment in your company’s equity, or its overall value. Use the assets side to list your company’s tangible and intangible assets, as well as its cash on hand.

Number of Returns, Business Receipts, Business Deductions, Net Income

In practice, when companies lease items, the accountants must determine, based on accounting rules, whether or not the business “owns” the item. If it is determined the business “owns” the building or equipment, the item is listed on the balance sheet at the original cost. Accountants also take into account the building or equipment’s value when the item is worn out.

More In File

A sole proprietorship is an unincorporated business that has just one owner who pays personal income tax on profits earned from the business. Many sole proprietors do business under their own names because creating a separate business or trade name isn’t necessary. An LLC (limited liability company) is a business entity type that has flexibility in how it files its taxes. It can opt to file as a C corporation or an S corporation if the business believes there’s savings to be had.

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