Financial Management 101: Introduction to Business Finance-Income Statement Details

Income Statement Details

Pdf Summary

This document provides a deconstructed sample income statement using the percentage of sales model. The income statement breaks down the various components of a distributor's revenue and expenses.<br /><br />The net revenue, or net sales, represents the distributor's sales of goods and services to customers. This is the starting point for the revenue/income process.<br /><br />The cost of sales, also known as cost of goods sold (COGS), includes the purchase cost of merchandise used for resale as well as the cost of maintenance and refurbishment of equipment. Depreciation expense is included in the cost of sales for both sales and rental activities.<br /><br />The gross profit/margin is the difference between net revenue and cost of sales. When expressed as a dollar amount, it is called gross profit, and when expressed as a percentage, it is called gross margin. This is the money that the distributor uses to pay all expenses beyond the cost of sales, known as selling, general, and administrative expenses (SG&A).<br /><br />Payroll expenses include all monetary and beneficial compensation for employees, excluding service technicians who are part of the cost of sales.<br /><br />Occupancy expenses are the costs associated with occupying and maintaining the physical location of the distributorship, including utilities, building repairs and maintenance, and property insurance.<br /><br />Other operating expenses are the expenses that arise during the ordinary course of operating a distributorship, such as advertising and sales promotion, vehicle expenses, IT expenses, depreciation and amortization, professional fees, travel and entertainment, office supplies, and bad debt losses.<br /><br />The operating profit, also known as operating income or EBIT (earnings before interest and taxes), is the remaining revenue after deducting all expenses, including cost of sales and operating expenses.<br /><br />Other income and expenses include rental purchase option interest income, other income generated outside of the primary revenue generation methods, and interest expense.<br /><br />The profit before taxes, or net income before tax, represents the distributorship's profit or loss for the period before deducting taxes.<br /><br />Finally, the net profit after tax represents the distributorship's net income after deducting taxes.<br /><br />Overall, this deconstructed income statement provides a detailed breakdown of the distributor's revenue and expenses, allowing for a better understanding of the financial performance of the business.

Keywords

deconstructed income statement

percentage of sales model

net revenue

cost of sales

gross profit

gross margin

selling general and administrative expenses

payroll expenses

occupancy expenses

operating profit