Chapter 3: The Income Statement

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  • This shows the company's financial performance over a period, usually one year
  • A balance sheet is like a photo and an income statement is like a video
  • Also called a Profit and Loss (P&L) statement
  • Details the Revenues and Expenses
  • Operating Expenses are expenses related to normal operations (for example rent)
  • Non Operating Expenses are unlikely to be repeated (for example a lawsuit)
Income Statement
Revenue
Sales $450,000
Cost of goods sold ($75,000)
Gross Profit $375,000
Operating Expenses
Rent $45,000
Salaries and Wages $120,000
Insurance $35,000
Total Operating Expenses $20,000
Operating Income $175,000
Non-Operating Expenses
Lawsuit Settlement $120,000
Total Non-Operating Expenses $120,000
Net Income $55,000

Companies try to classify as many expenses as possible as non-operating to make their operating income more impressive to investors

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  • 10 months ago by vince