Factors affecting a company’s Income statement

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What’s in an Income Statement? Revenue Less: Cost of Sales Gross Profit Less: Expenses Net Income What’s in an Income Statement? Income Statement: Reports a snapshot of a company’s business performance over a period of time. This statement indicates how much revenue (sales) is generated by a business, and also accounts for direct product costs, general expenses, Interest on Debt, Taxes, and other expense items. The purpose of this statement is to show the company’s level of profitability, which is equal to a company’s Revenue net of its expenses. Replace Almond Joy with Hershey. Copyright © Texas Education Agency, 2011. All rights reserved.

Income Statement Format (Sample) Revenue Less: Cost of Sales Gross Profit Less: Expenses Net Income Income Statement Format (Sample) Revenue Cost of Sales Gross Profit (Revenue less Cost of Sales) Operating Expenses (i.e., Salaries, Rent, Depreciation) Income From Operations (Gross Profit less Expenses) Less: Interest Expense (or Add Interest Income) Net Income Before Tax Income Tax Net Income After Tax Copyright © Texas Education Agency, 2011. All rights reserved.

Calculating Net Income and Net Loss Revenue Less: Cost of Sales Gross Profit Less: Expenses Net Income Calculating Net Income and Net Loss REVENUE less EXPENSES equals… If REVENUE > EXPENSES, then NET INCOME If REVENUE < EXPENSES, then NET LOSS Copyright © Texas Education Agency, 2011. All rights reserved.

Simple Income Statement Notes to Instructor: Extend this activity by distributing a more complete income statement (attached). Ask the students to consider three sections: Revenue, Cost of Goods Sold (the same as Cost of Sales), and Expenses. Copyright © Texas Education Agency, 2011. All rights reserved.

Example 2 Notes to Instructor: Extend this activity by distributing a more complete income statement (attached). Ask the students to consider three sections: Revenue, Cost of Goods Sold (the same as Cost of Sales), and Expenses. Copyright © Texas Education Agency, 2011. All rights reserved.

Revenue Less: Cost of Sales Gross Profit Less: Expenses Net Income Tying it all together Natural Resources Human Resources Capital Resources Factors of Production Complete Income Statement Examples worksheet located under Documents and Examples Copyright © Texas Education Agency, 2011. All rights reserved.

Revenue Less: Cost of Sales Gross Profit Less: Expenses Net Income Resources Natural Resources Human Resources Capital Resources Factors of Production Brown, Betty J., Clow, John E., & Brown, Kenneth W. (1995). Introduction to Business. New York: Glencoe/Mac-Graw Hill. ________ (2007). Beginner’s Guide to Financial Statements. Retrieved from U.S. Securities and Exchange Commission Web site: http://www.sec.gov/investor/pubs/begfinstmtguide.htm Penn, Pace (2010, February 13). The four factors of production. Retrieved from University of North Carolina at Chapel Hill, LEARN NC Web site: http://www.learnnc.org/lp/pages/3760 Rubistar. (2000 – 2008). Retrieved from ALTEC of University of Kansas Web site: http://rubistar.4teachers.org/index.php Copyright © Texas Education Agency, 2011. All rights reserved.