income statement test

Revenue recognition

The process of recording revenue when it is earned and realizable

Sales returns

Returns of products by customers that reduce reported revenue

Deferred revenue

Cash received before goods/services are delivered (liability until earned)

Earned revenue

Revenue recognized after goods/services are delivered

Gross revenue

Total sales before deducting returns

Net revenue

Sales after deducting returns

Subscription revenue

Revenue recognized over time as service is delivered

Contra-revenue accounts

Accounts that reduce total revenue (e.g.

Multiple-element revenue

Revenue from a bundled sale allocated among components

Recurring revenue

Steady income from ongoing customer relationships

One-time revenue

Income from non-repeat or single sales

Revenue growth rate

(Current Revenue – Prior Revenue) ÷ Prior Revenue

Cost of Goods Sold (COGS)

Direct costs of producing or purchasing goods sold

Operating expenses

Expenses not directly tied to production (e.g.

SG&A

Selling

Depreciation

Allocation of cost of tangible assets over useful life

Amortization

Allocation of cost of intangible assets over useful life

R&D expenses

Costs spent on research and development

EBITDA

Earnings Before Interest

Non-operating expenses

Costs not related to core operations (e.g.

Income tax expense

Tax cost based on income before tax × tax rate

Net income

Total profit after all revenues and expenses

Net profit margin

Net Income ÷ Revenue

Common-sized income statement

Each line item expressed as a % of total revenue

COGS ratio

COGS ÷ Revenue — shows cost structure efficiency

Operating margin

Operating Income ÷ Revenue — measures operating efficiency