income statement

what are other names for the income statement?

income statement, statement of income, statement of operations, statement of earnings, profit, and loss statement, P&L

what is the purpose of the income statement?

it shows whether a company was able to generate revenues in excess of expenses during a specific period (a quarter or a year)

what does revenues>expenses mean

net income

what does it mean if revenues<expenses

net loss

balance =as of

income =period of time

true. remember this

are dividends an expense?

noooo.

how is the income statement measured?

accrual accounting.

reminder: what is accrual accounting?

record the financial effects of transaction in the periods in which those transactions occur (doesn’t matter if the cash comes in before or after)

when are revenues reported?

WHEN THE GOODS OR SERVICES ARE PROVIDED

when are expenses reported?

when the costs are incurred (not necessarily when we cut a check)

what is a typical format of income statements?

1. gross profit

2. operating income

3. pretax income

4. net income

true or false: the sales revenue may not equal the amount of cash that came into the business from sales this period.

true. because it is measured by the amount earned. the cash receipts could arrive in earlier periods or later periods

true or false: operating expenses may not match the amount of cash that was paid during the period.

True because it is the amount of cost incurred during the period the cash payments for inventory sold could be made in earlier periods or later periods

true or false: net income is NOT how much cash came in or out of the business during the period

True because it reflects what was earned during the period on that basis, which is why net income is sometimes called earnings

typically how many years does the income statement show?

3

what is the top line of any income statement?

revenues

what are revenues?

the amount of resources generated by providing goods or services to customers during a specified time period

how are the revenues reported?

net.

gross minus expected returns.

possible names of an income statement

sales, revenues, sales revenue, net sales, net revenues, net sales revenue; sales, net; revenues, net; sales revenue, net

what is the second line of the income statement

cost of goods sold

what is cost of goods sold

cost to purchase or manufacture inventory and shipping costs.

everything to get it ready for sale.

what are other names for cost of goods sold?

COGS, cost of sales, cost of revenues, cost of merchandise sold, cost of products sold

where do cost of goods sold start? How do they move to the income statement?

start on the balance sheet. Moves to the income statement when other companies produce their inventory.

what is gross profit

gross profit= revenues-cost of goods sold

what does the gross profit tell us?

gross profit is the first summary measure of profitability reported on the income statement. It tells us whether revenues are sufficient to cover the cost that can be directly tied to the products being sold during the period.

what are “selling, general and administrative expenses”

indirect costs

catch-all account that includes operating costs that are not included in the cost of goods sold because they cannot be directly tied to a specific product

ex: costs related to salaries and wages, marketing, distribution, facilities management, depreciation, and amortization

what are other names for selling, general and administrative expenses?

selling, general, and administrative expenses

general and administrative expenses

SG&A

what is the 2nd subtotal on the income statement?

operating income

operating income=revenues - all operating expenses

what is the operating income?

Operating income equals revenues minus all operating

operating income is the second summary measure of profitability reported on the income statement. It tells us whether their revenues are sufficient to cover the cost of all operating expenses, both direct and indirect during.

does not include income taxes

does include COGS and SG&A

how does the operating income cut the income statement in half?

between operating items and non-operating items

how do you calculate cost of goods sold?

cost of goods sold= revenue-gross profit