Income Statement: Glossary

Income statement: (also known as Profit and Loss account) is a financial

statement, prepared to determine financial performance (Profitability) of a
business at a particular date.

Relation between Balance Sheet and Income Statement: Balance is prepared

to know the soundness of a business, which determines financial position and
where in case of profit and loss account is prepared to determine financial
performance of a business.

Cost: Cost is a monetary measurement of the amount of resources used for some
purpose.

Cost of sales: The cost of goods or services sold is called the cost of sales. The
cost of sales is the accumulated total of all costs used to create a product or
service, which has been sold.

Depreciation expense: The portion of the cost of a fixed asset that is recorded
as an expense each year of its useful life.

Disbursement: A disbursement is the payment of cash. A cash expenditure is a

disbursement, but so is any cash payment, such as paying an account payable,
repaying a loan, or paying a cash dividend to shareholders.

Earnings per share (EPS): is a company's net profit divided by the number of
common shares it has outstanding. EPS indicates how much money a company
makes for each share of its stock, and is a widely used metric to estimate
corporate value.

Expenditure: Expenditure also known as Capital expenditure. This means

money spent by a business or organization on acquiring fixed assets, such as
land, buildings, Machinery and equipment. Ex: Purchase of Land, Buildings,
Machinery and Equipment.

Expense: Expense is also termed as Revenue expenditure; an expense is an item

of cost applicable to the current accounting period. An expense represents
resources consumed by the entity’s earnings activities during the current period
to generate revenues. Ex: Wages Paid, Salaries Paid, Rent Paid, Utility bills,
Advertisement, Manufacturing, Selling and Administration expenses etc.

Gross margin (or) Gross Profit: The difference between net sales revenue and
cost of sales is the gross margin (or gross profit).
Matching Concept: Using the matching concept of accounting, the Incomes
and expenses are matched together and profit or loss will be determined.

The debit side of the profit and loss account shows the expenses and the credit
side the incomes. If the total of the credit side is more, it will result in net
profit. Moreover, if the debit side is more, it will result in net loss.

Net sales: Sales revenue less sales returns and allowances and less sales
discounts.

Operating expenses: Expenses incurred in the process of earning sales revenue.

Operating Income: Income from a company’s principal operating activity;

determined by subtracting cost of goods sold and operating expenses from net
sales.

Non-operating activities: Various revenues, expenses, gains, and losses that are
unrelated to a company’s main line of operations.

Net profit: also known as Net Income or Net earnings. It is the result after all
expenses have been subtracted from revenues. This figure is the aggregate result
of all operating and financing activities of an organization. As such, it is
routinely relied upon by investors, creditors, and lenders to make decisions
about how to deal with a firm. Net profit is also called the bottom line, because
it is positioned at the bottom of the income statement.

Net loss: The amount by which expenses exceed revenues.

Retained earnings: Net income retained in a corporation.

Retained earnings statement: A summary of the changes in the retained

earnings in a corporation for a specific period of time, such as a month or a year.

Revenue: Revenue is the earnings gained from the provision of services or

goods, or from the use of assets. Income can be generated in a number of ways,
such as Sale of Inventory, Rent received, Commission received, Interest
received, Income from Investments, and services rendered etc.

Sales: The total amount charged customers for merchandise sold, including cash
sales and sales on account.

Service: A type of business that provides services rather than products to

customers.
References: All the definitions used in the glossary are sourced from the following web
sites.
https:www.Investopedia.com/
https://www.accountingtools.com/
https://corporatefinanceinstitute.com/