Chapter 1 - Income Statement TO KNOW Flashcards
Net Sales
Total Revenue - Returns - Discounts - Allowances.
Example: $10,000 in sales minus $500 in returns, $300 in discounts, and $200 in allowances = $9,000.
Cost of Goods Sold (COGS)
Direct costs of making products.
Example: Flour, sugar, and labor cost $20,000.
Gross Profit
Net Sales - COGS.
Example: $50,000 - $20,000 = $30,000.
Selling, General, and Administrative Expenses
Rent, utilities, marketing, salaries.
Example: Bakery rent and ads cost $5,000.
Depreciation Expense
Reduction in equipment value.
Example: The bakery records $2,000 for oven depreciation.
Earnings Before Interest and Taxes (EBIT)
Gross Profit - Operating Expenses.
Example: $30,000 - ($5,000 + $2,000) = $23,000.
Final Profit Calculation
EBT - taxes
Interest Expense
Cost of loans.
Example: The bakery pays $3,000 in interest.
Earnings Before Taxes
EBT - TAXABLE Expense.
Example: 20000 - 40% in taxes = 12000.
What is Income Tax
Taxes owed based on income
Example: 15% of $20,000 = $3,000.
Net Income
Final profit after taxes.
Example: $20,000 - $3,000 = $17,000.
What is Net Income?
Net income is the bottom-line profit of a company after all expenses, taxes, and costs have been deducted from revenue. On the income statement.
Dividends Paid
Part of profit given to owners.
Example: Bakery pays $5,000 to the owner.
Addition to Retained Earnings
Profit kept in the business.
Example: $17,000 - $5,000 = $12,000.
