What Is an Internal Income Statement?
An internal income statement is a financial document used to gauge a company's ability to generate revenue and profit. An internal income statement remains within the given business and is not public knowledge. Creating this document still requires great attention to detail to ensure financial accounting accuracy. Without a clear financial picture, a company can't accurately determine which areas of its infrastructure need improvement.
Internal Income Statement Definition
An internal income statement is an accounting document measuring any financial aspect of a business that its leadership chooses. An internal income statement does not follow the rules and guidelines established by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants. This allows a business to craft an internal income statement to measure a variety of revenue figures, including measures of long-term profitability, without the need to adhere to formal presentation styles. Even though the statement doesn't have to follow a legal formula, the document should still have a semblance of order to allow management and ownership to review the document easily.
Creating Chart of Accounts
A chart of accounts is a list of account names available on a company's general ledger. Accountants working for a business have the ability to move accounts onto and form the chart of accounts as the company sees fit. The business determines which account names to place on the chart of accounts through the use of an internal income statement. Basically, the internal income statement helps the company figure out which accounts look the best in terms of revenue potential and cost. This allows the business to put its best accounts forward on the general ledger, which it makes available to shareholders and other potential investors.
Creating an internal income statement allows a business to take stock of its changes in operating income, costs, assets and profit levels before the company makes this information available to shareholders and government reporting agencies. Performed early in the fiscal year, a business may have sufficient time to correct problem areas identified by its internal income statement. This can save the company's potential profitability and result in an encouraging income statement when the business formally makes it available to the public at the end of the year.
Accuracy of financial information is critical in an internal income statement, even though the data only has use inside the company. Errors in an internal income statement can result in a business focusing on areas of the company that don't require immediate attention. The company may only discover the errors when accountants prepare to create the formal income statement near the close of the fiscal year. This can allow areas of the company with revenue problems to worsen over the course of a year and lead to an even larger drop in revenue and profit.
Jonathan Lister has been a writer and content marketer since 2003. His latest book publication, "Bullet, a Demos City Novel" is forthcoming from J Taylor Publishing in June 2014. He holds a Bachelor of Arts in English from Shippensburg University and a Master of Fine Arts in writing and poetics from Naropa University.