Page 74 - Finance for Non-Financial Managers

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The Income Statement: The Flow of Progress
Sales
475,000
Cost of Sales
Gross Profit $650,000
175,000
Operating Expenses
Engineering 25,000
Sales and Marketing 76,000
General and Administrative 37,000 138,000
Operating Income 37,000
Other Income and Expenses (5,000)
Income Before Expenses 32,000
24,000
Income Taxes 12,800
Net Income 19,200
Earnings per Share $0.10

Fully Diluted Earnings per Share $0.08

Figure 4-1. The Wonder Widget income statement
offers for sale in the normal course of business. This means we
don’t include the sale of surplus equipment off the shop floor,
because that’s not our business. We also don’t include the sale of
a building that we’re not using anymore (unless our business is
buying and selling buildings). It also means, as noted above, a
sale that has been completed, an irrevocable transaction for
which the customer is required to pay.
Depending on your business, sales might be called different
things on your income statement. Sales of services are often
called revenue, although the terms mean pretty much the same
thing, and there are no real differences in the rules between
sales of products and sales of services. We will use the terms
interchangeably in this book.

Cost of Sales: What It Takes to Earn the Sale
The cost of sales is, logically, the costs directly related to deliv-
ering on the sale. It always includes the cost to make or buy the