The Income Statement, Simply Explained

The income statement — sometimes called the profit & loss statement, or P&L — shows how much money a company made and spent over a period of time, like a quarter or a full year. Unlike a balance sheet, which is a single snapshot, the income statement is more like a video: it captures a stretch of activity from the first day of the period to the last.

The structure follows a simple logic: start with revenue (money earned from selling products or services), subtract the direct cost of producing what was sold to get gross profit, subtract operating expenses like salaries, rent, and marketing to get operating income, and subtract interest and taxes to arrive at net income — the number often called "the bottom line."

Revenue                     $500M
Cost of Goods Sold           -$200M
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Gross Profit                  $300M

Operating Expenses            -$180M
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Operating Income (EBIT)        $120M

Interest & Taxes                -$45M
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Net Income                      $75M

On an income statement, revenue minus the cost of goods sold equals ____.

This lesson follows one illustrative example company throughout this level: Brightleaf Coffee Co., a fictional coffee chain. Brightleaf earned $500 million in revenue this year, and after all its costs, expenses, interest, and taxes, its net income — its actual profit — was $75 million. That $75 million is what's available to reinvest in the business, pay down debt, or return to shareholders.

Brightleaf Coffee Co. has revenue of $500 million and cost of goods sold of $200 million. What is its gross profit?

The income statement shows a company's financial position at a single point in time, like a snapshot.