Know your numbers

By Drum Digital
23 November 2013

Understanding the income statement

Understanding the income statement

TOTAL SALES , or REVENUE 

The amount you invoice customers or the sales you make every month.

COST OF SALES:

What it costs to put your products on the shelf. This includes materials to produce the product, delivery, import duties and other costs.

GROSS PROFIT: 

The  money left over after you deduct your cost of sales or turnover but does not include your overhead expenses.

OVERHEAD EXPENSES

Your monthly costs that have to be deducted from the gross profit. These costs include rent and salaries as well as costs that can change every month, such as telephone charges, petrol, travel costs and electricity.

NET PROFIT

What remains after all expenses have been paid and which tax must still be paid.

Calculating a simple simple income statement:

A basic formula for calculating a simple income statement says that total sales (turnover) minus the cost of sales gives you your gross profit. Subtracting your overhead expenses gives you your next profit.

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