Income Statement Flashcards
What are the two types of income statements?
Single-step
multiple-step
What is “income from operations”?
Pulled from an income statement;
indicates the level of profit produced by the principal activities of the company
income from operations = gross margin - operating expenses
What are “nonoperating activities”?
A section on an income statement (frequently called other income and expenses);
would include gains/losses like rental income, interest gained/paid, taxes, etc
What is a “net loss”?
Determined on an income statement where expenses are greater than revenue.
What is “gross margin” (or “gross profit”)?
Pulled from an income statement;
represents the initial profit made from selling a product (before deducting other expenses)
gross margin = net sales - cost of goods
What are “losses”?
Reported on an income statement in the expense area, but resulting from peripheral transactions like storm damage
What are “gains”?
Gains are a type of revenue that arises from peripheral activity like the sale of a property; reported in the revenue section of an income statement
What is an income statement?
Reports the results of a companies operations for a given period. It shows the companies ability to produce net income showing revenue over expenses.
What is “net profit margin” (or “return on sales”)?
a measure of a company’s ability to generate profit;
calculated by:
net profit margin = net income / sales (or service) revenue
What is “net income”? (or “net earnings”)
Determined on the income statement by subtracting revenue from expenses.
How do you prepare a multiple-step income statement?
1) Heading (business, statement type, date)
2) Compute gross profit as the difference between net sales and cost of goods sold.
3) Compute income from operations by subtracting operating expenses from gross profit.
4) Compute income before income taxes by subtracting nonoperating activities from income from operations.
5) Compute net income (or net loss) by subtracting income taxes expense from income before income taxes. Double-underline net income.
What are “expenses”?
The cost of resources to earn revenue. Number one is cost of goods, followed by salaries, advertising, depreciation, R&D, interest on debt, taxes.
What is “sales revenue” (or “service revenue”)
revenue that arises from the principal activity of the business;
also called net sales/net service
How do you prepare a single-step income statement?
1) Heading (business, statement type, date)
2) List the revenues of the company, starting with sales revenue (or service revenue) and then listing other revenue items. Add the revenues to get total revenue.
3) List the expenses of the company, usually starting with cost of goods sold. Add the expenses to get total expenses.
4) Subtract the expenses from the revenues to get net income (or net loss if expenses exceed revenues). Double-underline net income.
What are “revenues”?
the increase in net assets that result from the sale of products or services; shown on an income statement and separate from “gains”
