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