A Glossary Of Income Statement Terms

This week, as we conclude our four-part post that outlines essential bookkeeping and accounting terms, we have put together a list of essential Income Statement Terms. Through this glossary of terms, Centrosome Inc.  wants to help you comprehend and communicate your bookkeeping and accounting needs more effectively.

An income statement or profit and loss account is one of the financial statements of a company and shows the company’s revenues and expenses during a particular period. It indicates how the revenues are transformed into the net income or net profit.

Cost of goods sold (COGS): The direct expenses related to producing the goods sold by a business. The formula for calculating this will depend on what is being produced, but as an example this may include the cost of the raw materials (parts) and the amount of employee labour used in production.

Depreciation: Depreciation is the term that accounts for the loss of value in an asset over time. Generally, an asset has to have substantial value in order to warrant depreciating it. Common assets to be depreciated are automobiles and equipment. Depreciation appears on the Income Statement as an expense and is often categorized as a “Non-Cash Expense” since it doesn’t have a direct impact on a company’s cash position.

Expenses (fixed, variable, accrued, operation) (FE, VE, AE, OE)

• Fixed expenses (FE): payments like rent that will happen in a regularly scheduled cadence.
• Variable expenses (VE): expenses, like labour costs, that may change in a given time period.
• Accrued expense (AE): an incurred expense that hasn’t been paid yet.
• Operation expenses (OE): business expenditures not directly associated with the production of goods or services—for example, advertising costs, property taxes or insurance expenditures.

Gross Margin (GM): Gross Margin is a percentage calculated by taking Gross Profit and dividing by Revenue for the same period. It represents the profitability of a company after deducting the Cost of Goods Sold.

Gross Profit (GP): Gross Profit indicates the profitability of a company in dollars, without taking overhead expenses into account. It is calculated by subtracting the Cost of Goods Sold from Revenue for the same period.

Net income (NI): A company’s total earnings, also called net profit. Net income is calculated by subtracting total expenses from total revenues.

Net Margin (NM): Net Margin is the percentage amount that illustrates the profit of a company in relation to its Revenue. It is calculated by taking Net Income and dividing it by Revenue for a given period.

Revenue (Sales): Revenue or Sales is any money earned by the business.

Click here for Part 3 of our Glossary Series.     |     Click here for Part 1 of our Glossary Series.

To help you better understand these terms as well as others, reach out to the experts at Centrosome Inc. We are a small business bookkeeping and accounting company, based out of Ottawa, ON, that services clients across Canada and the US. View our full list of services here, read customer reviews here, or get in touch with us here.