Question

How do I find the net income when dealing with a Traditional income statement

Answer 1

Traditional income statement is a dominant statement because it is used by almost all the organization World wide. It compliance with IRS and GAAP guidelines.

In traditional income statement following lines are there :

Line 1 : Sales revenue

Line 2: Cost of goods sold [ Direct material + Direct labor + Allocated Manufacturing overhead]

Line 3: Gross profit margin

Line 4: Selling, general and administrative expenses

Line 5: Net operating income margin

Line 6: Non operating expenses and non operating income

Line 7: Net income

Process of ascertaining net income :

(1) At first subtract cost of goods sold from sales revenue to get gross profit margin.

Gross profit = Sales revenue - Cost of goods sold

(2) Subtract total of selling , general and administrative expenses  from gross profit margin to calculate net operating income.

Net operating income = Gross profit margin - selling , general and administrative expenses

(3) Add non operating income and subtract non operating expenses from net operating income to get net income.

Net income = net operating income + non operating income - non operating expenses