Cracking the Code of the Income Statement

Note the word we used in the title to this chapter: code. Unfortunately, an income statement can often seem like a code that needs to be deciphered.

Here’s the reason. In books like this one—and even later in this book—you will often find cute little sample income statements. They look something like this:

Revenue $100
Cost of goods sold 50
Gross profit 50
Expenses 30
Taxes 5
Net profit $ 15

A bright fourth grader wouldn’t need much help figuring out that one, once she had a little help with definitions. She could even do the math without a calculator. But now check out a real-world income statement—your own company’s or one that you find in some other company’s annual report. If it’s a detailed ...

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