Basic Accounting
Build an income statement
What you will learn
Separate gross profit, operating profit and net profit.
Gross profit = revenue − cost of sales
Start with recognised revenue, then deduct cost of sales to get gross profit. Subtract operating costs to reach operating profit. When the problem assumes no other income or expense, subtract interest and tax to reach net profit. Check which costs already include depreciation before using EBITDA. Compare each subtotal with the appropriate revenue base. A fictional Kochi retailer earns ₹10 lakh in sales, incurs ₹6 lakh cost of sales and ₹2 lakh of operating costs. Gross profit is ₹4 lakh and operating profit is ₹2 lakh.
A fictional Kochi retailer earns ₹10 lakh in sales, incurs ₹6 lakh cost of sales and ₹2 lakh of operating costs. Gross profit is ₹4 lakh and operating profit is ₹2 lakh.
Start with recognised revenue, then deduct cost of sales to get gross profit. Subtract operating costs to reach operating profit. When the problem assumes no other income or expense, subtract interest and tax to reach net profit. Check which costs already include depreciation before using EBITDA. Compare each subtotal with the appropriate revenue base. A fictional Kochi retailer earns ₹10 lakh in sales, incurs ₹6 lakh cost of sales and ₹2 lakh of operating costs. Gross profit is ₹4 lakh and operating profit is ₹2 lakh.
Where does financing interest appear in a simple income statement?