2.1 Income Statement Overview

Income Statement Overview

• The income statement is the statement that keeps track of whether a company is making money in a given period.

• This same statement can also be called the statement of operations, consolidated statement of operations, profit & loss (p & l) statement, and statement of earnings.

Revenue Definition

• Revenue is a promise to pay for products or services provided. Sales can mean the same thing as revenue.

• It is the total dollar amount for goods and services that are credited to an income statement over a particular time period.

• A key phrase in the revenue definition is "promise to pay."

Expenses Definitions

• Expenses are the costs to create and deliver the products and services to customers.

• There are two major categories of expenses that are found in the income statement:

• Cost of goods sold (COGS) (also called cost of revenue, product cost, cost of sales (COS)). Cost of goods sold includes all the costs to manufacture the product or deliver the service, such as materials and labor costs to make the product and labor costs to deliver the service.

• Selling, general and administrative (SG&A) expenses. These are the costs that an enterprise incurs that can not be assigned directly or indirectly to production. Examples include research and development costs, marketing costs, and support costs.

Income Definitions

• Income is how much is left over from revenue after all the expenses are paid.

• Profit, income, and earnings all mean the same thing.

• Operating income (also called EBIT, earnings before interest and taxes) is the income from the operations of the business. It is calculated before non-operational expenses are subtracted (such as interest and taxes).

• Net income is the income after all expenses are subtracted, including interest and taxes.

Bottom Lines

• Operating income/EBIT (earnings before interest and taxes)

• Net income

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