How to read an income statement
See the bigger picture
Try the interactive lessonLet’s make it simple.
The income statement tells the story of profit over a period. Revenue minus cost of goods sold gives gross profit. Subtract operating expenses to find operating profit.
Picture this.
A bakery earns $1,000. Ingredients cost $400. Gross profit is $600. After $200 of rent and other operating expenses, operating profit is $400.
Check your understanding
Your bakery earns $1,000 in revenue. Cost of goods sold is $400. What is gross profit?
Think it through, then reveal the explanation
Gross profit = Revenue − Cost of goods sold. $1,000 − $400 = $600. Operating expenses come later.
Build the bigger picture.
- Revenue
- Cost of goods sold
- Gross profit
- Operating expenses
- Operating profit
Tell the profit story from money earned to money left.
Now make it move.
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Practice Statements