WFU Law School
Law & Valuation
3.3 Income Statement

3.3.1 Income Statement Items

While the balance sheet constitutes a financial "snapshot" at a given point in time (such as December 31), the income statement summarizes a financial "movie" of operational results over a period of time (such as for the year ending December 31). It shows performance -- the company's revenues minus expenses equal net income.

ALBEGA CORPORATION
Income Statement
Year ended December 31, 20xx
Net sales
$500,000
Cost of goods sold
$304,000
Gross margin
$196,000
Other expenses
$115,000
Depreciation
$ 15,000
Selling and administrative expenses
$100,000
Operating income
$81,000
Other income
$ 0
Total income
$81,000
Dividends and interest
$13,000
Interest on long-term notes
$ 13,000
Income before income taxes
$68,000
Income taxes
$18,000
Net profit
$50,000
Extraordinary items
$12,000
Net income
$38,000
Net income per share
(1,000 shares outstanding)
$ 38.00

The income statement gives a detailed account of --

Revenues
-
Expenses
=
Income

Notice that there are six "income" subtotals

  • Gross margin = sales - cost of goods
  • Operating income/profit = gross margin - expenses not allocated to goods sold
  • Total income = operating + other income
  • IBIT (income before income taxes) = total income - dividends, interest
  • Net profit = total income after dividends, interest, taxes
  • Net income = net profit - extraordinary items

Items

What do the various items in an income statement mean?

  • Net sales
  • Cost of goods
  • Depreciation
  • Selling and administrative expenses
  • Interest
  • Income taxes
  • Extraordinary items

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3.3 Income Statement

©2003 Professor Alan R. Palmiter

This page was last updated on: March 24, 2004