# Income Statement ## Basics - Income Statement has many labels - Profit and Loss Statement (P&L) - Operating Statement - Statement of Earnings - Can measure entire business, or a division, or any business unit - Income statement is a specific period of time - A order is NOT a sale until product/service is provided to a customer. ## Components - Cost-of-Goods-Sold (COGS) - The costs **directly associated** with providing a product or service - **Direct labor** to manufacture the product - **Direct material** in the product - Manufacturing Overhead -- **indirect expenses** required to build the product - For [[saas|SaaS]] firms -- The costs **directly associated** with delivering its product to its customers - Operating Expenses - Research and Development - Selling Costs - General and Administrative Costs (G&A) - Capital Expenditures - Cash expenses paid for assets that provide benefits over a long time frame - Depreciation – tangible assets - Amortization – intangible assets - **Matching Principle** - match expenses to revenue for each accounting period, based on estimated useful life of the asset - One-Time Charges - Goodwill Impairment - Restructuring - Gross Profit (Income) = Sales - COGS - Operating Profit (Income) = Gross Profit - Operating Expenses - Also known as EBIT (Earnings before Interest and Taxes) - Reflects what business earns from **operating** it's business - Net Profit (Income) - Operating Profit - interest expense - other expenses (typically one-time) - taxes - Primary measurement on public companies -- the **Bottom Line** ## Formulae - Net Sales - Cost of Goods Sold (COGS) = *Gross* Income/Loss - Gross Income (Profit) - Operating Expense = *Operating* Income/Loss - Operating Income +/- Other Income/Expense = Income/Loss before Tax - Income before Tax - Income Taxes = *Net* Income/Loss