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Success-R-Us Income Statement
For the year ended December 31, 2009

Selling Expenses 35,000

Administrative Expenses 45,000

Total Operating Expenses 80,000

Operating Income 40,000

Interest Expense 12,000

Income before Taxes 28,000

Income Tax Expense 5,000

Net Income after Taxes 23,000

Sales or Revenue
The sales or revenue portion of the income statement is where the retail price
of the product is expressed in terms of dollars times the number of units sold. This
can be product units or service units. Sales can be expressed in one category as total
sales or can be broken out into more than one type of sales category: car sales, part
sales, and service sales, for instance. In our Success-R-Us example, the company sold
20,000 books at a retail price of $25 each, for total revenues of $500,000. Because
Success-R-Us sells all of its books on credit (i.e., you can charge them on your credit
card), the company does not collect cash for these sales until the end of the month, or
whenever the credit card company settles up with Success-R-Us.
Cost of Goods Sold/Cost of Sales
The cost of goods sold/sales portion of the income statement shows the cost of
products purchased for resale, or the direct labor cost (service person wages) for
service businesses. Cost of goods sold/sales also may include additional categories,
such as freight charges cost or subcontract labor costs. These costs also may be
expressed in one category as total cost of goods sold/sales or can be broken out to
match the sales categories: car purchases, parts, purchases, and service salaries, for
example.
Breaking out sales and cost of goods sold/sales into separate categories can
have an advantage over combining all sales and costs into one category. When you
break out sales, you can see how much each product you have sold costs and the
gross profit for each product. This type of analysis enables you to make inventory and
sales decisions about each product individually.
Gross Profit
The gross profit portion of the income/P&L statement tells the difference
between what you sold the product or service for and what the product or service cost
you. The goal of any business is to sell enough units of product or service to be able
to subtract the cost and have a high enough gross profit to cover operating expenses,
plus yield a net income that is a reasonable return on investment. The key to
operating a profitable business is to maximize gross profit.

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