Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsIncome StatementThe income statement is a summary of income and expenses for abusiness over a specific period. It should be prepared at regular intervals(usually monthly and at fi nancial year-end) to show the results of operations fora given period. Profi t or loss is calculated in the following way:SalesLessSales Discounts /SalesCommissionsEqualsNet SalesLessCost of Goods SoldEqualsGross ProfitLessExpenses(Fixed & Variable)Net ProfitOnly those businessesthat have goods(products) to sell willuse the calculation ofcost of goods soldEqualsHINTOpeningInventoryPlusInventory PurchaseEqualsInventory availablefor saleLessClosing InventoryCalculating the costof goods sold variesdepending on whether thebusiness is retail, wholesale, manufacturing or aservice business. In retailand wholesale business,computing the cost ofgoods sold during thereporting period involvesbeginning and endinginventories includingpurchases made duringthe period.In manufacturing, itinvolves fi nished goodsinventories, plus rawmaterials inventories,work-in-progressinventories, direct labour,and direct factory overheadcosts.In the case of a servicebusiness, the revenue isbeing derived from theactivities of individualsrather than the sale ofa product. Hence, thecalculation of cost ofgoods sold is a smallertask due to the low level ofmaterials usedto earn the income.12chapter 1 01-21 Eng.indd 128/15/11 5:01:23 PM