Below is an explanation of the [Activity-Based] Income Statement Format:
To offer an appreciation why the [Activity-Based] Income Statement format is a more appropriate arrangement of revenue and expense accounts for any service-based business is first to explain the two primary reasons why the conventional income statement format utilized in QuickBooks and similar business software is not an appropriate income structure for any service-based business.
1 -There is no logical reason for a service-based business to classify and group business expenses in the manner required to determine a “Gross Profit subtotal” line within the structure of the income statement. This traditional “Revenue Minus Cost-of-Sales=Gross Profit” income statement sub-total offers no value for a service sector business or is it a required in any I.R.S. federal tax statement.
2 -The traditional income statement format of classifying expense accounts by functional departments structured below the gross-profit subtotal offers little help in making business decisions for a service-based business. In fact; it is more likely to be misleading than add any informational value when utilized for making business decisions.
The only income statement QuickBooks financial software program can create is structured in a traditional or a trial balance format. This conventional presentation used by all publicly held businesses who issue both quarterly and annual financial statements and operate under the rules and regulations for all companies in the public sector of the economy is not appropriate for non-public service-based businesses.
In contrast, the [Activity Based] Income Statement structure utilized in the FastBooks Solutions Service Based Accounting Model is more appropriate for any service-based business. This simplified format restructures all revenue and expense accounts in the chart-of-accounts into one of four activity-based categories.
The FastBooks.Solutions [Microsoft-Excel] Service Business Accounting Model creates five unique [Activity Based] presentations of the income statement generated from the monthly revenue and expense transactions downloaded or entered in model segments seven and eight.
The five unique presentations of the Income Statements generated are designed to enable a business owner or manager to quickly understand and analyze the “financial drivers” which affects the profitability of the business and assist in “spotting unusual items” which may require further review.
The various income statement presentations include simple to learn, easy to use preset “what-if” functionality designed to perform future forecasting and assist in making logically based mathematically sound business decisions.
This easy-to-learn-and-use business accounting model structured in a familiar [Microsoft-Excel-Workbook] will save both time and money and provide a Paradigm-Shift of new insight and exceptionally unique business functionality for service sector enterprises not offered in QuickBooks or similar relational based accounting software.
This unique format also allows a service-based business to quickly create both Revenue Break Even Point and Risk Reward Ratio calculations and perform other various What-if calculations and easily construct strategically important future revenue-based business forecasting. Now is the perfect time to take the “non-service side” but very challenging and necessary financial, tactical and strategic-scope of your Service-Based-Business into the 21st Century.