Income Statement for Beginners
Updated: Feb 16, 2022
Income Statement (Profit Loss) 101
An income statement, or profit and loss, is one of the most important financial statements a company can review. It shows the company’s revenues and expenses during a particular time period. The purpose of the income statement is to show managers, owners, and investors whether the company made or lost money during the time period being reported.
Income/Revenue – This section shows the company’s revenue made by category before any expenses are taken into consideration.
Cost of Goods/Services Sold (COGS) – These are direct costs in creating the product or service you are selling. For example, if you manufacture toys then one direct cost would be the cost of plastic to make that toy. Another example, if you are a sales consulting firm then a COGS would include a training manual given to your client.
Gross Profit – This is Total Income minus COGS.
Expenses – If needed, you can break this into two parts for your company: “warehouse (manufacturing) expenses” and “administrative expenses.” Here you will list all the various expenses that your business has.
Net Operating Income – Gross Profit minus Total Expenses (Admin and manufacturing) equals Net Operating Income.
Non-Operating Other Income/Expenses – This includes taxes, interest income/expense, gain/loss on sales of asset, etc.
Net Income – Net Operating Income minus non-operating equals Net Income.