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Understanding
Income Statement
The
Income Statement is a record of the company’s
profitability over a period of time, such as a year.
The
Income Statement is a record of the company’s
profitability over a period of time, such as a year. It
tells you how much money a corporation made (or lost).
And also presents revenues generated during the
operating period, the expenses incurred during that same
period, and the company’s net earnings or profits.
There
are four broad classes of expenses such as cost of goods
sold, general and administrative expenses, interest
expense on the firm’s debt, and taxes on earnings owned
to federal and local governments.
Cost of goods sold
is the direct cost attributable to producing the product
sold by the firm.
General and
administrative expenses are
corresponds to overhead expenses, salaries, advertising,
and other costs of operating the firm that are not
directly attributable to production.
The
difference between operating revenues and operating
costs is called operating income.
Income
from other, primarily nonrecurring, sources is then
added to obtain Earnings Before Interest and Taxes (EBIT),
which is what the firm would have earned if not for
obligations to its creditors and the tax authorities.
EBIT is a measure of the profitability of the firm's
operations abstracting from any interest burden
attributable to debt financing. The income statement
then goes on to subtract net interest expense from EBIT
to arrive at taxable income. Finally, the income tax due
to the government is subtracted to arrive at Net
Income.
Example for Income Statement
Operating revenues
Net sales
$204,380
Operating expenses
Cost of sales
$ 79,430
Selling, general, and administrative expenses
81,720
Depreciation and amortization
9,600
Other expenses
1,380
Total operating expenses
$172,130
Operating income
$ 32,250
Non-operating income
1,300
Earnings before interest and income taxes
$ 33,550
Net interest expense
1,450
Earnings before income taxes
$ 32,100
Income taxes
10,270
Net
income
$ 21,830
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