Watch this with a 10-15 minute audiotrack at http://vimeo.com/novusprogram/lesson11 This lesson introduces the Income Statement (aka Profit & Loss Statement.) Understanding this common financial statement is essential to understanding how business works. The lesson covers the basic structure of the report, and introduces the key elements of the income statement. The Novus project is a combination of video tutorials designed to be used in conjunction with a free business simulation software program. The Novus Business and IT Program contains 36 business and IT training videos, covering basic finance, accounting, marketing, economics, business strategy, Word, Excel, and PowerPoint. Users will have an opportunity to apply the lessons in the Novus Business Simulator. Over six rounds, the user or teams will have to make decisions on capital purchases, financing, production, financing, and human resources for a microbrewery. This channel has arranged the 36 video lessons into the order in which they are meant to be used with the simulator. To watch this slideshow as a video, please go to our Vimeo page at: https://vimeo.com/novusprogram. To download our free business simulation software, please go to our SourceForge page at: http://sourceforge.net/projects/novus/.

1. Basic Finance:
Understanding the Income Statement
Training Objective: To understand the purpose and structure of an Income
Statement.
Novus Business and IT Training Program

2. Income Statement
• Also known as the Profit and Loss Statement
• Shows the results of a business over a set period
of time, usually one quarter (3 months) or one
year.
Novus Business and IT Training Program 1

3. Net Income
Net Income = Sales – Expenses
Or, said another way,
Net Income = Money Coming In – Money going out
Novus Business and IT Training Program 2

4. Income Statement: Sales
Star Hat Store Income Statement
Year Ending Year Ending
31-Dec-2011 31-Dec-2010
Sales 100,000 80,000 20% increase
Cost of Goods Sold - 65,000 55,000 from 2010 to
2011
Gross Income = 35,000 25,000
Selling General and Administrative Expenses - 15,000 15,000
Operating Income = 20,000 10,000
Other Income and Expenses - 8,000 8,000
Pre-Tax Income = 12,000 2,000
Taxes - 2,400 400
Net Income = 9,600 1,600
3

5. Income Statement: Cost of Goods Sold
Star Hat Store Income Statement
Year Ending Year Ending
31-Dec-2011 31-Dec-2010
Sales 100,000 80,000
Cost of Goods Sold - 65,000 55,000
Gross Income = 35,000 25,000
Selling General and Administrative Expenses - 15,000 15,000
Operating Income = 20,000 10,000
Other Income and Expenses - 8,000 8,000
Pre-Tax Income = 12,000 2,000
Taxes - 2,400 400
Net Income = 9,600 1,600
4

6. Income Statement: Gross Income
Star Hat Store Income Statement
Year Ending Year Ending
31-Dec-2011 31-Dec-2010
Sales 100,000 80,000
Cost of Goods Sold - 65,000 55,000
Gross Income = 35,000 25,000
Selling General and Administrative Expenses - 15,000 15,000
Operating Income = 20,000 10,000
Other Income and Expenses - 8,000 8,000
Pre-Tax Income = 12,000 2,000
Taxes - 2,400 400
Net Income = 9,600 1,600
5

7. Income Statement: Gross Margin
Star Hat Store Income Statement
Year Ending Year Ending
31-Dec-2011 31-Dec-2010
2011 Gross Margin
Sales 100,000 80,000 35,000
Cost of Goods Sold - 65,000 55,000 ------------ = 35%
100,000
Gross Income = 35,000 25,000
Selling General and Administrative Expenses - 15,000 15,000
2010 Gross Margin
Operating Income = 20,000 10,000
Other Income and Expenses - 8,000 8,000 25,000
------------ = 31%
Pre-Tax Income = 12,000 2,000 80,000
Taxes - 2,400 400
Net Income = 9,600 1,600
6

8. Income Statement: SG&A
Star Hat Store Income Statement
Year Ending Year Ending
31-Dec-2011 31-Dec-2010
Sales 100,000 80,000
Cost of Goods Sold - 65,000 55,000
Gross Income = 35,000 25,000
Selling General and Administrative
Expenses - 15,000 15,000
Operating Income = 20,000 10,000
Other Income and Expenses - 8,000 8,000
Pre-Tax Income = 12,000 2,000
Taxes - 2,400 400
Net Income = 9,600 1,600
7

9. Income Statement: Operating Income
Star Hat Store Income Statement
Year Ending Year Ending
31-Dec-2011 31-Dec-2010
Sales 100,000 80,000
Cost of Goods Sold - 65,000 55,000
Gross Income = 35,000 25,000
Selling General and Administrative Expenses - 15,000 15,000
Operating Income = 20,000 10,000
Other Income and Expenses - 8,000 8,000
Pre-Tax Income = 12,000 2,000
Taxes - 2,400 400
Net Income = 9,600 1,600
8

10. Income Statement: Other Income and
Expenses
Star Hat Store Income Statement
Year Ending Year Ending
31-Dec-2011 31-Dec-2010
Sales 100,000 80,000
Cost of Goods Sold - 65,000 55,000
Gross Income = 35,000 25,000
Selling General and Administrative Expenses - 15,000 15,000
Operating Income = 20,000 10,000
Other Income and Expenses - 8,000 8,000
Pre-Tax Income = 12,000 2,000
Taxes - 2,400 400
Net Income = 9,600 1,600
9

11. Income Statement: Pre-Tax Income
Star Hat Store Income Statement
Year Ending Year Ending
31-Dec-2011 31-Dec-2010
Sales 100,000 80,000
Cost of Goods Sold - 65,000 55,000
Gross Income = 35,000 25,000
Selling General and Administrative Expenses - 15,000 15,000
Operating Income = 20,000 10,000
Other Income and Expenses - 8,000 8,000
Pre-Tax Income = 12,000 2,000
Taxes - 2,400 400
Net Income = 9,600 1,600
10

12. Income Statement: Taxes
Star Hat Store Income Statement
Year Ending Year Ending
31-Dec-2011 31-Dec-2010
Sales 100,000 80,000
Cost of Goods Sold - 65,000 55,000
Gross Income = 35,000 25,000
Selling General and Administrative Expenses - 15,000 15,000
Operating Income = 20,000 10,000
Other Income and Expenses - 8,000 8,000
Pre-Tax Income = 12,000 2,000
Taxes - 2,400 400
Net Income = 9,600 1,600
11

13. Income Statement: Net Income
Star Hat Store Income Statement
Year Ending Year Ending
31-Dec-2011 31-Dec-2010
Sales 100,000 80,000
Cost of Goods Sold - 65,000 55,000
Gross Income = 35,000 25,000
Selling General and Administrative Expenses - 15,000 15,000
Operating Income = 20,000 10,000
Other Income and Expenses - 8,000 8,000
Pre-Tax Income = 12,000 2,000
Taxes - 2,400 400
Net Income = 9,600 1,600
12