The Income Statement is divided into four major categories: Show sample report
|
Category |
Description |
Accounts Involved |
|
Above the Line |
Revenue earned and Expenses incurred (COS) are commonly referred to as “above the line” items because they are what affect the profit of your business. Generally, your COS reduces your taxable income so it is best to record all of your qualified expenses in your COS accounts as it make sense for your business and it falls within the law. |
Revenue COS |
|
The Line |
Gross Profit is “The Line” because it is what you have left over to work with once you pay for the goods or services you sold to generate the revenue. This figure is generally your taxable income. |
Gross Profit How it is figured: Gross Profit = Revenue - COS |
|
Below the Line |
Expenses and other income are often referred to as “below the line” because they just feed off the gross profit, reducing the profit to what you finally scoop up in your “net” to keep. |
Expenses Other Expenses Other Income |
|
The Bottom Line |
This is what you scooped up in your "net" to keep. This figure is transferred over to the balance sheet so you can track the amount you made or lost over the year. |
Net Income How it is figured: Net Income = Gross Profit - Total Operating Expenses + Other Income - Other Expenses A positive figure results in Net Profit; a negative figure results in a Net Loss. |