Question

How to explain and classify income statement revenue, gross profit, and net income?

Answer 1

The value of a company's sales of goods and services to its consumers is referred to as revenue. Even though investors focus on a company's bottom line, the top line is where the revenue or income process begins. Furthermore, profit margins on a company's existing goods tend to hit a maximum that is difficult to enhance in the long run. When looking at an income statement, revenue is classified into two categories. It's categorized as gross revenue, the entire amount of money your company makes through selling goods or services (EASTERN, 2016). Net revenue is the amount left over after all expenses and costs of products sold (or the cost of doing business) have been deducted from gross revenue. Employee wages, the cost of supplies required to manufacture the service or product, customer discounts, and any product returns are all examples of this.

The difference between net sales and the cost of sales isn't the only thing gross profit represents. Gross profit gives the funds to cover the business's other expenses. The more consistent a company's gross margin is, the more favorable bottom-line outcomes are possible. Sales are usually referred to as gross sales on an income statement. Net sales are the results of deducting any returned items from gross sales. Retailers frequently disclose both net sales and revenue. The bottom line, or net income, is the most often used indication of a company's profitability. This account caption will read as a net loss if costs exceed income (Lau & Fredriksson, 2017). Net income forms part of a company's equity position as retained earnings after preferred dividends are paid, if any. Net income appears as the final line on the income statement after all costs, interest, and taxes have been deducted from revenues.

 

 

 

 

The value of a company's sales of goods and services to its consumers is referred to as revenue.