Income Statement Flashcards
(14 cards)
What is the Income Statement?
The income statement, which is referred to as the profit and loss statement, the statement of operations, and the statement of income. the income statement’s sole purpose is to show a company’s profitability over a given period of time.
Revenue
This line is sometimes referred to as Sales or Turnover. Revenue is the first line item that appears on the income statement and simply refers to the sales made by the organization.
Cost of Revenue
This line has many different names, such as. Cost of Sales, Cost of Goods Sold (COGS), and Production Costs. It is the costs that are related to making the company’s primary product or service. If you’re looking for more details on the derivation of this number, you can dig into the accounting policies in the annual report.
Gross Profit
This is sometimes referred to as the company’s Margin or Markup. Gross profit is simply the revenue generated from the core products and services less the direct cost associated with the production of goods or delivery of service.
Sales and marketing expense
This line is sometimes combined with Administration Expense and called SGA (Selling, General and Administration). While the salles and marketing expense is a secondary expense, and therefore not directly related to the product, the importance of the advertisement in generating sales cannot be denied.
Research and Development
Today’s world is consumer-led and therefor companies carry out continuous research and development operations. these efforts enable companies to introduced new products and services and exploit different market segments. the need to continuously innovate means that companies incur cost related to research for particular products or services. The development side generally includes the prototype that is made before the actual product goes into production. these costs are secondary costs and are therefore deducted from the gross profit.
General and administrative expenses
This typically has a huge impact on corporations that manage large-scale sales. Labor cost is directly associated with production and therefor is a part of the cost of revenue.
Other operating expenses
All the overhead costs the cannot be categorized into the major lines the company has selected to represent. Think of it as a catchall category for any miscellaneous expense reporting. it could be operating leases and IT, for instance.
Operating expense
This line is simply a summation of all the secondary expenses.
Income from operations
This intermediate result is often referred to as earnings, before interest and taxes (EBIT). It often gives the investor a great look at how the company can handle its future debt obligations.
Net interest income/expense
Sometimes this line is referred to as Financial Items or Other Income/Expenses. One reason this line has different names is because you can really put a lot into this category. This is simply the cost of servicing debt that is incurred by the organization when it takes on debt. So that is the exact opposite effect to the net interest income. More often than not, this line would show a negative number rather than a positive number. The reason for this is that companies use debt as a financing source, while keeping money in the bank to provide flexibility for their daily operations.
Extraordinary income/expenses
This line is something that is not part of the daily operations and cannot be predicted. Like lawsuits, restructuring charges, if a company decides to close down a subsidiary, merge two divisions, or for any other season decides to change the organization, a number of costs are likely to occur. For instance, it could be personnel receiving severance pay. Again, this is something that we cannot expect to happen on a regular basis.
Income Taxes
Sometimes labeled as Income Before Tax or Pretax Income. levied by a government directly on income.
Net Income
This is sometimes referred to as Profit for the Year or _ _ from Continued Operations. The amount an individual or business makes after deducting costs, allowances and taxes. This is what the business has left over after all expenses, including salary and wages, cost of goods or raw material and taxes.
