Income Statement Terminology

Revenues. Depending on the industry where the company do business, revenues may also be called sales. Revenues are the amount of cash or receivables generated by the company by selling its products to the market. In companies with many subsidiaries (companies that they own more than 50%), total revenues includes revenues from the subsidiaries.

Cost of sales is composed of costs that are directly related to revenues. These are costs necessary to produce the products of the company. Thus, expect this item to rise if revenues increase.

Gross profit is the net total of revenues and cost of sales.

Expenses are costs incurred in the normal course of business. Expenses has many subclassifications but it is common to divide expenses to “selling expense” and “general and administrative expenses.” Selling expenses are expenses incurred for selling the product like advertising and salaries of sales personnel. General and administrative expenses are expenses incurred for the day to day operations of the company like salaries for accountants, managers and office supplies.

Operating profit is the difference between gross margin and expenses.

Other income and expenses are income generated or expenses incurred that does not come from normal operations. Other income includes profit from sale of assets, investment profits, and interest income. Other expenses include costs incurred on sales of assets, losses on investments, foreign exchanges, and interest expense.

Profit/loss before tax is net total of operating profit and other income and expenses.

Provision for income tax self explanatory.

Net income/loss is net total of profit/loss before tax and provision for income tax.

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