Personal Income Statement

As is the case with the balance sheet, two example income statements are presented—the first applies to personal income and expenses and the second applies to a business. Later in this chapter, a second business income statement is used to explain the importance of the income statement for a professional services business. 

Table 10.3 This hypothetical annual income statement shows a young person s income, expenses, and net income.

A personal income statement like that shown in Table 10.3 could be used in a postmortem mode to review income and expenses during the past year. In addition, a personal income statement could also be used in a prospective mode to plan income and its use in the near future. Retrospective and prospective uses of income statements are routine in the business environment. 

Finally, note that there is no obvious quantitative coimection between Table 10.3, the income statement, and Table 10.1, the balance sheet, even though they could be for the same hypothetical young person. The first applies to a point in time and the second to an interval of time. However, both are needed to understand the young person s financial situation. 

Table 10.4 follows the same general format as the example of personal income statement but applies to a hypothetical construction company. The hypothetical business for which the income statement was developed is for the same business in the calendar year for which Table 10.2, the balance sheet, was developed. One indication of the relationship between the balance sheet and the income statement is retained earnings of 252,755.21 in Table 10.2 and the identical retained earnings balance at the end of the year in Table 10.4. However, there are a few obvious connections between the construction company s balance sheet (Table 10.2) and its income statement (Table 10.4).

It is not easy to get the necessary information to do a good cash flow analysis. Start with your checkbook, credit card statements, and tax records. The most difficult information to get will be what you spend on cash purchases. The best approach is to keep a journal for a couple of weeks to get a pattern and then estimate the amounts factoring in your personal experience. Income information should be available from your tax records. 

The first step requires that one assess one s current situation regarding income, savings, living expenses, and debts. This step requires that one prepare a list of current asset and debt balances, along with present expenditures. Personal finance statements (discussed later in this chapter) can be a useful tool for this step. 

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