Income Statement (IS)

To appear on the Income Statement, each item must meet the following criteria

1. It must correspond to the period shown on the Income Statement only - if you're paying for an asset that will last for 10-20 years, it would not appear on a 1-year Income Statement 2. It must affect the company's taxes. For example, interest paid on debt is tax-deductible so it appears on the Income Statement, but repaying debt principal is NOT tax-deductible, so it does not appear on the Income Statement

Line items will always appear because

1. They do affect the company's taxes (paying an employee's salary reduces the company's taxable income) 2. They correspond to the period shown on the IS

Line items will never appear because

1. They do not affect the company's taxes (Dividends or Purchasing Inventory) 2. They do not correspond to the period listed on the Income Statement (Capital Expenditures refers to purchasing Assets that often last for 10-20 or more years)

A few points on Income Statement Revenue, Expenses, & Taxes (1/3)

1. They do not need to be related to a company's operational activities - Gains and Losses on asset sales, Depreciation, and Interest Expense still appear on the IS but are not related to everyday business

Never appears (2/2)

Capital Expenditures, Purchasing or selling investments and PPE, Dividends, Issuing or repaying debt principal, issuing or repurchasing shares, Changes to Balance Sheet Items such as Cash, Debt, Accounts Receivable, Accounts Payable, etc

A few points on Income Statement Revenue, Expenses, & Taxes (3/3)

Items might be embedded in other items, for example sometimes Depreciation is included in COGS or Operating Expenses, other times it is a separate item

Operating Expenses (Main Section of Income Statement 2/4)

Items that are NOT directly linked to product sales -- employee salaries, rent, marketing, research and development, as well as non-cash expenses like Depreciation and Amortization

Taxes and Net Income (Main Section of Income Statement 4/4)

Net Income represents the company's "bottom line" --how much in after-tax profits it has earned. Net Income = Revenue - Expenses - Taxes

Revenue and Cost of Goods Sold (Main Section of Income Statement 1/4)

Revenue is the value of the products/services that a company sells in the period COGS represents the expenses linked directly to the sale of those products/services

Always appears (1/2)

Revenue, COGS, Operating Expenses, Depreciation, Amortization, Stock-based Compensation, Interest, Gains/(Losses), Write-Downs, Other Income/(Expenses)

A few points on Income Statement Revenue, Expenses, & Taxes (2/3)

They do not need to be cash expenses (or cash revenue) - for example, Depreciation and Amortization are both non-cash expenses. Also, companies often record revenue and expenses here before they receive or pay them in cash.

Other Income and Expenses (Main Section of Income Statement 3/4)

This goes between Operating Income and Pre-Tax Income. Interest shows up here, as well as items such as Gains and Losses when Assets are sold, Impairment Charges, Write-Downs, and anything else that is not part of the company's core business operations.

The Income Statement lists

a company's revenue, expenses, and taxes, with its after-tax profit at the very bottom, over a period of time (one quarter-10Q, one month, or one year-10K)