Understanding Income Statements

Front

Income statement

Back

report showing revenues, expenses, and net income for a period

Front

Revenue

Back

income from sales of goods or services before expenses

Front

Expenses

Back

incurred in earning revenue, e.g., rent, wages, utilities

Front

Cost of goods sold (COGS)

Back

costs of producing goods sold, e.g., materials, labour

Front

Operating expenses

Back

running costs, excluding COGS, e.g., admin, marketing

Front

Net income

Back

after all expenses deducted from total revenue

Front

Importance of income statement

Back

profitability, guides decisions, attracts investors

Front

Gross profit

Back

minus cost of goods sold: <katex latex="Gross\ profit = Revenue - COGS"></katex>

Front

Operating profit

Back

profit minus operating expenses

Front

Non-operating expenses

Back

not related to core business, e.g., interest, taxes