Economics Part A

Income Statement Example - Simplified

An Income Statement example is presented in one column as shown in the following table.

The statement relates to the activity of the firm during a single year. The statement first presents all the firm’s revenues during that year, which is followed by all of the expenses during the year. 

In the given simplified income statement example:

The first line states the firm’s total revenues during the year.

The lines thereafter, present annual expense items, that are classified by their character.

The usual expense items are as follows:

1. Cost of sales, which includes

  • Raw materials.

  • Salaries of production employees.

  • Depreciation (wear and tear on machinery, equipment and buildings).


2. General and administrative expenses

3. Sales and marketing expenses

4. Financing expenses (interest)

5. Taxes

The expense lines are not presented consecutively. Almost every one of them is followed by an intermediate line listing the difference between total revenues and total expenses, up to and including the expense line above it. Each intermediate line has a short title ending with the word “profit”, for example: operating profit, gross profit, etc.

As seen below (income statement example - table 7.7) the bottom line is net profit. Unfortunately, sometimes this number is negative. In this case, its title changes to net loss, instead of net profit.


Table 7.7

Revenues

1,500

Cost of Sales

1,000

Gross Profit (intermediate line)

500

General and Administrative Expenses

100

Sales and Marketing Expenses

150

Operating Profit (intermediate line)

250

Financing Expenses

50

Pre- Tax Profit

200

Tax

80

Net Profit

120

Income Statement Example - Simplified545Income Statement Example - Simplified