Your own knowledge of your reports will be your saving grace. As you can see, everything starts with the prior period’s balance sheet. This is the starting point for all of the reports because it shows the asset, liability, and equity accounts at the beginning of the period. Close the books with less runaround. Share this sheet with your accounting team to easily manage your financial month end process and keep everyone on schedule. Use the sheet for monthly, quarterly, and annual tasks. Gross profit is calculated by subtracting cost of goods sold from net sales. Operating income is calculated by subtracting operating expenses from the gross profit. From this starting point, we can add or subtract the operating activities reported on the income statement. This includes all revenues and expenses that the company incurred during the year.