Income Statement Breakdown (Part 3): Operating Expenses
This is part 3 of a 4 part series on the income statement. Taking the time to understand each part of your income statement will help you to save money and make more money in your business.
In the Revenues section of your income statement, you started with Gross Sales and ended with Net Sales. In the Cost of Goods Sold section of your income statement, you had the choice of either using the accrual method or the cash method to take the Net Sales number and end up with Gross Profit.
Now, we’re looking at operating expenses. Operating expenses, as the name implies, are the expenses associated with running your business. These expenses might include salaries, advertising, supplies, rent, insurance, utilities, and depreciation. These are added up and subtracted from the Gross Profit number we calculated in the last section of the income statement. The number we’ll end up here is sometimes called Net Profit and sometimes called “Income”.
Let’s keep building on the income statement of the fictional business we’ve been talking about, but we’ll use both the accrual example and the cash example so you can see how both work:
Tags: Accrual Method, Business Expenses, Business Salaries, Cash Method, Depreciation, Gross Profit, Gross Sales, Income Statement, Insurance, Money, Net Profit, Net Sales, Operating Expenses, Raw Materials, Running, Shipping, Subtotal, Taking The Time
