Reading an income statement in Advantage Salon Software.
Wednesday, April 1, 2015
Parts of a Salon or Spa Software Income Statement
The first and most important part of a salon's or spa's income statement is the line reporting service sales revenue. Salons and Spas need to be consistent from year to year regarding when they record sales. In the default chart of accounts in Advantage Software is account 4000 Sales of services. Account 4040 in the sample chart of account is the sales of retail items. Its important for these amounts to be separated so you as the owner you can see the breakdown of where you are generating your income from. Most salons and spas must reach at least 15% of sales be retail items to stay consistently profitable. 25% retail to service sales would be most advantageous and indicate that your service providers are successfully prescribing products to your clients.
The next line in an income statement is the cost of services sold expense. this amount represents the commissions and hourly wages paid to service providers. To cover overhead cost of services should reside near the 50% mark of service sales.
Another line in the income statement is the COGS or cost of goods sold. This represents the cost of the retail items sold. There are three methods of reporting cost of goods sold expense. One is called "first in-first out" (FIFO); another is the "last in-last out" (LIFO) method and the last is the average cost method. Cost of goods sold expense is a huge item in an income statement and how it's reported can make a substantial impact on the reported bottom line. Advantage software uses an average costing system in order to figure out the COGS in financial reports in the software.
Other items in an income statement include inventory write-downs. A business should regularly inspect its inventory carefully to determine any losses due to theft, damage and deterioration, and to apply the lower of cost or market (LCM) method.
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