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Basic Accounting Terms All Business Owners Should Know–Income Statement

1. Cost of Goods Sold (COGS) – Cost of Goods Sold are the expenses that directly relate to the creation of a product or service.  An example of COGS would be the cost of Materials, or the Direct Labor to provide a service.

2. Depreciation – Depreciation is the term that accounts for the loss of value in an asset over time.  Common assets to be depreciated are automobiles and equipment. Depreciation appears on the Income Statement as an expense and is often categorized as a “Non-Cash Expense” since it doesn’t have a direct impact on a company’s cash position.

3. Expense – An expense is any cost incurred by the business.

4. Gross Profit – Gross Profit indicates the profitability of a company in dollars, without taking overhead expenses into account. It is calculated by subtracting the Cost of Goods Sold from Revenue for the same period.

5. Income Statement –   The Income Statement is often referred to as the Profit and Loss, P&L.  It is the financial statement that shows the revenues, expenses, and profits over a given period of time.

6, Net Income – Net Income is the dollar amount that is earned in profits. It is calculated by taking Revenue and subtracting all of the Expenses in a given period, including COGS, Overhead, Depreciation, and Taxes.

7. Revenue – Revenue is any money earned by the business.

Income Statement

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