THE 7 MOST RELEVANT ELEMENTS OF THE INCOME STATEMENT - CULTURE VOCABULARY - 2024

The elements of the income statement are income or sales, costs of sales, operating expenses, gross profit, gross loss, net profit and loss for the year.

The income statement, also called a statement of economic performance or profit and loss statement, is a type of financial balance that shows how the accounting year was during a given period.

This type of balance must be executed by a public accountant and is mandatory for any company.

The income statement shows some payments and commitments such as income tax.

The 7 main elements of the income statement

1- Income or sales

The income or sales represent the profits that the company obtained from the sale of products or in the provision of its services.

2- Costs of what is sold

The costs of what is sold are linked to the purchase of materials inherent to the production of the raw material, or all the objects that the company makes in order to profit. The purchase of equipment and furniture must also be added to this line.

If you want to determine what the cost of the raw material is, you must calculate how many units are necessary to make the product in question, and what are the prices per unit.

3- Operating expenses

Operating costs are divided into two types. The first is direct and variable costs, these include everything that is inherent to labor, maintenance and supervision.

The second type refers to indirect and fixed costs. These are expenses that are not dependent on production, but increase cost budgets.

This second type includes taxes, accounting, stationery, insurance, rent, surveillance and security services.

Also included are medical staff for employees, radio and television advertising, participation in trade shows, free courtesy sample shipments, and distribution costs, among others.

4- Gross profit

Gross profit is the profit received by the company once the investments made in production are discounted, assuming that the cost of the goods sold is less than the amount of the sales.

The income statement in this case will show profitability, taking the gross statement minus sales.

5- Gross loss

It is when the cost of what is sold is greater than the amount of the sales made. The formula to obtain the calculation would be taking the sale of the products less the cost of what was sold.

6- Net profit

It is the profit that was obtained during a period determining, but discounting the expenses for income tax.

These taxes are unavoidable commitments that companies must pay to the State, but the rate could vary according to the tax provisions of each country and period.

7- Loss of exercise

It represents the monetary losses that the company suffered when production costs and expenses greatly exceeded total income and profits.

References

1. Ochoa, G. (2009). Financial administration. Retrieved on December 5, 2017 from: usbscz.edu.bo
2. Statement of income. Retrieved on December 05, 2017 from: es.wikipedia.org
3. Statement of income. Retrieved on December 5, 2017 from: academia.edu
4. Drury, C. (2013). Managment and cost accounting. Hong Kong: ELBS. Retrieved on December 5, 2017 from: books.google.es
5. Weil, R. (2012). Financial Accounting: An Introduction to Concepts, Methods, and Uses. Retrieved on December 5, 2017 from: usbscz.edu.bo