Factors that Makeup an Income Statement

Analyzing Revenues, Costs, & Expenses

What is an Income Statement?

A summary of a business’s income & expenses during a specific period and shows their profit or loss.

Factors that are addressed in an Income Statement

Revenue Cost of Goods Gross Margin Operating Expenses Taxes Net Profit(Income) or Loss

Revenue

Any money that is generated and flows into a business.

Most money in a business is generated through sales revenue

Cost of Goods Sold(COGS)

The amount it costs to produce or purchase goods that are sold.

Gross Margin(Profit)

The difference between sales revenue & cost of goods sold. Profit before operating expenses are taken out.

Gross Sales – COGS = Gross Profit

Operating Expenses

Any money paid by a company to operate and maintain the business.

Dollars that flow out of a business

Two Types of Operating Expenses

Variable – Change from month to month (Ex.-Utilities)

Fixed – Same from month to month (Ex.-Rent)

Taxes

The amount paid to the government

Basic Business Formula

Revenue – Costs & Expenses =

Net Profit or Loss

Break-even Point

Revenue = Costs & Expenses There is no Profit or Loss

Purpose of an Income Statement

The ultimate purpose is to see if revenues outweigh expenses to

determine if a business makes a profit or loss over a period of time.