MG 298 Entrepreneurship Module #6 Financial Intelligence: Understanding Financial Statements 16 October 2007

Income Statement The Income Statement shows revenues, expenses, and profits for a period of time, such as a month, a quarter, or a year. It is also called Profit and Loss (P&L) Statement, Statement of Earnings, or Statement of Operations. The bottom line of the Income Statement is Net Profit, also known as Net Income or Net Earnings

Operating Expenses Operating Expenses are the costs that are required to keep the business going day to day. They include Salaries, Benefits, Insurance Costs, etc. Operating Expenses are listed on the Income Statement, and are subtracted from Revenue to determine Profit. Operating Expenses show up on the Income Statement, and thus reduce Profit.

Capital Expenditures A Capital Expenditure is the purchase of an item that is considered a long – term Investment, such as Computer Systems and Equipment. Most companies follow the rule that any purchase over a certain amount counts as a Capital Expenditure, while anything less is Operating Expense. Capital Expenditures show up on the Balance Sheet; only the Depreciation of a piece of capital equipment appears on the Income Statement