Income Statement

Question 1

Definition Income Statements

1.
2.
3.

Answer 1

• also: statement of financial position / Profit and Loss statement
• lists firms revenues and expenses over a period of time
• last line shows the firms net income

Question 2

Gross Profit

Answer 2

• cost of sales | costs directly related to producing the goods or services being sold | others such as administrative expenses, research and development, interest are NOT included
• third line is gross profit: the difference between sales revenues and the costs

Question 3

Operating Expenses

Answer 3

• expenses from ordinary course of running the business that are not directly related to producing the goods or services being sold
• including: administrative expenses and overhead, salaries, marketing costs, research and development expenses
• NOT and actual cash expense: depreciation and amortization
• operating income: gross profit net of operating expenses

Question 4

Earnings before Interest and Taxes

Answer 4

• other sources of income or expenses that arise from activities that are not the central part of a companys business
• e.g. income from the firms financial investments