The income statement looks very different compared to the balance sheet that we created in the previous tutorial. The important aspects of the income statement are as follows.

• Only income related accounts are used on the report. In contrast to the balance sheet which encompasses every account in the chart of accounts, the income statement filters out everything except revenues and expenses.
• Individual accounts are not listed. The income statement is very small because only account categories are shown. The sub-total for each category is the summation of all accounts that belong to that category.
• Indentation is not used to separate one category from the other. All category names are left-justified and lined up with each other. While it is certainly acceptable to use indentation, many times this is not done.
• No negative numbers are shown. On the income statement, the only category that has a positive balance is the Net Revenue category. Every category after that gets subtracted from the Net Revenue balance because it is an expense. Even though the expenses are subtracted, they are still shown on the report as positive numbers. The exception is when the company loses money during the period. Then the balance is shown as a negative number and is usually called Net Loss.
• When you look at most reports, the balance for a section is usually a summary of the categories that came before it. Take the balance sheet as an example. The balance for the Current Assets section is the sub-total of all the accounts that are classified as current assets. But this is not the case with the income statement. The balance shown for each section is a summation of all the account balances that were shown prior to it. For example, if you look at the Gross Margin balance you will see that it is 200,000. This is the result of taking the Net Revenue balance of 300,000 and subtracting Cost of Goods Sold for 100,000. The next section, Operating Income, has a balance of 125,000. It is calculated by taking the previous section’s balance (Gross Margin at 200,000) and subtracting the Selling Expenses and General & Administrative Expenses balances. This effectively creates a running total balance down the report with each section summarizing the current balance as of that point in the report.

Now that you see the differences between the income statement and the balance sheet, you might be surprised to find out that they have very similar report designs. If you went through the previous tutorial and understood how to create the balance sheet report, then the income statement tutorial will be very easy for you. The biggest difference between the two reports is that the account balance needs to be a new formula so that it creates a running total of the section balances as the report is printed. Other than that, the grouping process and the method of handling debits and credits is almost the same.