Overview

The income statement, also known as profit & loss (P&L) statement, presents a company's sales and expenses over a period of time. This statement captures the operating health of a company: its ability to generate sales and profitability.
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The income statement will not reflect events that are not directly related to the operating strength of the business: loan payments, debt or equity funding, equity disbursements, large purchases of equipment and more.
*To find details on these events, you must refer to the cash flow statement

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Definition of Terms

Sales / Revenue

Measures goods or services sold during a period. Sales is the number of units that has sold, multiplied by a price per unit.

• Net Sales (cash accounting): Payouts from processors like Shopify, Amazon, Affirm, Stripe, Paypal, Authorize. These payouts can include income from customers paying shipping or sales tax and nets out payment processing fees

Cost of Goods Sold (COGS)

COGS measures the expenses incurred related to the direct production and delivery of goods. For eCommerce and CPG companies, COGS usually includes direct materials and production cost, freight in (from manufacturer to warehouse), warehouse fulfillment cost and freight to customer cost.

• Direct Materials: Cost of materials related to the item
• Freight In: Delivery of an item from manufacturer to warehouse
• Fulfillment / Warehousing: Storage, pick, pack and fulfillment cost
• Freight to Customer: Postage for shipping to end customer

Gross Profit / Gross Margin

Gross profit equals sales less COGS. Gross profit as a % of sales is a metric that indicates a company's direct profitability from the sale of goods

Operating expenses (Opex)

Opex measures additional expenses that are not directly incurred in the production and delivery of specific goods. Generally, expense categories that fall under opex are relatively fixed from period to period, regardless of how many units of its products the company sells.

• General & Administrative: Meals, travel, entertainment, utilities, telecom, internet, insurance, office supplies, rent
• Wages & Payroll: Full-time employees, contractors, benefits, payroll taxes
• Professional Services: Marketing agencies, accountants, legal, other advisors
• Sales & Marketing: Online advertising, SEO, tradeshows, promotional events
• Software & Subscription: Software subscriptions, hosting, call center services
• Payment Processing: Bank service charges, payment processor fees

Other Income & Expenses Interest

Income generated from bank deposits and savings accounts. Interest expenses include debt service payments

Taxes

Corporate or sales tax

Interest

Monthly interest payments related to loans outstanding. Principal payments for loans are not recorded under this line.

Net Income

Represents the profitability of a business on an aggregate basis, including the impact of overhead, marketing and other expenses.

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