THE INCOME STATEMENT Understanding Financial Statements

Income Statement Also called profit and loss statement (P&L) Shows performance of a business of a ver period of time (typically a month, quarter, semi-annual, or a year) Annually for tax purposes More frequently to use for decision making Formula to determine performance is Income(revenue) comes from sales, fees, etc. REVENUES – EXPENSES = INCOME

Income Statement EXPENSES Any costs company incurs in supporting operations Two categories of costs: Variable Costs- vary according to the sales activity of the company Fixed Costs- constant expenses- doesn’t change regardless of sales activity (ex: rent, insurance, etc.)

Class Activity Instructions: Read the article below on Income Statements. Review the Sample Income Statement. Work with a partner to ensure you understand how to interpret the statement. Collaborate to create an income statement for The Falcons’ Nest. Assume the following information: Net Sales: $15,000 Cost of Goods: $25,000 Bad Debt: $50 Advertising: $70 Mailing: $300 Income Statement Information