Income statement

What it is and why it matters

The income statement organizes the revenue and expenses of a period to show how much the business earns (or loses).

Gross sales include taxes; the cost of sales comes from the cost of goods consumed; operating costs gather staff, the month's expenses and taxes on sales.

The formula

• Revenue = food sales + beverage sales
• Cost of sales = food cost + beverage cost
• Operating costs = salaries + payroll charges + rent + utilities + general expenses + amortization + taxes + fees
• Result before income tax = revenue − cost of sales − operating costs
• Net result = result before income tax − income tax (35%)

What each value means

Gross sales

Food and beverage revenue, taxes included.

Cost of sales

The cost of goods consumed (food and beverages).

Operating costs

The month's fixed costs plus taxes on sales.

Income tax

Applies only when the result is positive.

Step by step

1. Add food and beverage sales.
2. Add food and beverage costs.
3. Add all operating costs.
4. Subtract cost of sales and operating costs from sales.
5. Work out the income tax and subtract it.

Worked examples

Study notes

• Tip

  If 25.5% of taxes is applied on net sales, you have to take roughly 20% off gross sales to get back to net sales (1 − 1 ÷ 1.255 ≈ 20.3%).

• Tip

  The statement's fixed costs (operating costs without sales taxes) are the ones the break-even point uses: $392,850 in the example.