Income Statement (Lecture 2)
Managerial Finance & Accounting
Core Concepts
Income Statement (Statement of Financial Performance)
1. Purpose
→ Shows profit/loss over a period (e.g., 1 year)
→ Measures wealth change: Revenues - Expenses = Profit
2. Key Components
A. Sales Revenue
→ Income from goods/services sold
→ Record when earned (not when cash received) - Accrual principle
B. Cost of Goods Sold (COGS) / Cost of Sales
→ Direct costs (materials, labor) of items sold
→ Calc: Opening Inv + Purchases - Closing Inv
C. Gross Profit
Gross Profit = Revenue - COGS
→ Earnings before operating expenses
D. Operating Expenses
→ Indirect costs (salaries, rent, utilities, depreciation)
→ Operating Profit = Gross Profit - Op Expenses
E. Finance Costs & Income
→ Interest Expense: Paid on borrowings
→ Interest Income: From investments
F. Profit Before Tax
PBT = Op Profit + Finance Inc - Finance Exp
G. Profit After Tax (Net Income)
→ After taxes
→ Distribute to owners or retain
Managerial Finance & Accounting
Core Concepts
Income Statement (Statement of Financial Performance)
1. Purpose
→ Shows profit/loss over a period (e.g., 1 year)
→ Measures wealth change: Revenues - Expenses = Profit
2. Key Components
A. Sales Revenue
→ Income from goods/services sold
→ Record when earned (not when cash received) - Accrual principle
B. Cost of Goods Sold (COGS) / Cost of Sales
→ Direct costs (materials, labor) of items sold
→ Calc: Opening Inv + Purchases - Closing Inv
C. Gross Profit
Gross Profit = Revenue - COGS
→ Earnings before operating expenses
D. Operating Expenses
→ Indirect costs (salaries, rent, utilities, depreciation)
→ Operating Profit = Gross Profit - Op Expenses
E. Finance Costs & Income
→ Interest Expense: Paid on borrowings
→ Interest Income: From investments
F. Profit Before Tax
PBT = Op Profit + Finance Inc - Finance Exp
G. Profit After Tax (Net Income)
→ After taxes
→ Distribute to owners or retain
