Financial Statements and Income Statement Overview

These flashcards cover key concepts related to financial statements, particularly focusing on the distinctions between expenditures and expenses, as well as components of the income statement.

Expenditures

An asset is acquired, such as purchasing onion seeds or a herd bull.

Expenses

Decreases in owner’s equity arising from the operation of the business during the accounting period.

Income Statement

Measures the earnings generated by a firm during the accounting period.

Gross sales

Total sales before deductions such as returns and allowances.

Net sales

Gross sales minus returns and allowances.

Cost of goods sold

Expenses incurred for acquiring or producing products sold.

Gross Margin

Net sales minus cost of goods sold.

Operating expenses

Remaining expenses associated with operating the business.

Operating income

Gross margin minus operating expenses.

Nonoperating income and expenses

Not directly associated with the principal activity of the business.

Income before taxes

Operating income minus nonoperating income and expenses.

Net income

Income before taxes minus income taxes.