Income Statement
Income Statement
An income statement, also known as a profit and loss statement, is a financial report that summarizes a company’s revenues, costs, and expenses over a specific period, usually a Fiscal Quarter or year. The primary purpose of an income statement is to provide a clear picture of a company’s profitability and performance during that time frame.
Components
- Revenues: The total amount of Money earned from sales of goods or services.
- Cost of Goods Sold (COGS): Direct costs attributable to the production of the goods sold.
- Gross Profit: Revenues minus COGS.
- Operating Expenses: Costs related to running the business, excluding COGS (e.g., salaries, rent, utilities).
- Operating Income: Gross profit minus operating expenses.
- Other Income/Expenses: Non-operating revenues or expenses, such as interest and taxes.
- Net Income: The final profit or loss after all revenues and expenses are accounted for.
Examples
Example 1: A retail company generates $500,000 in sales, has COGS of $300,000, operating expenses of $150,000, and pays $20,000 in taxes. The income statement would show:
- Revenues: $500,000
- COGS: $300,000
- Gross Profit: $200,000
- Operating Expenses: $150,000
- Operating Income: $50,000
- Taxes: $20,000
- Net Income: $30,000
Example 2: A tech company earns $1,000,000 from software sales, incurs COGS of $400,000, has operating expenses of $300,000, and pays $100,000 in taxes. The income statement would show:
- Revenues: $1,000,000
- COGS: $400,000
- Gross Profit: $600,000
- Operating Expenses: $300,000
- Operating Income: $300,000
- Taxes: $100,000
- Net Income: $200,000