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Expanded Income Statement

Expanded Income Statement

Author: Evan McLaughlin
Description:

In this lesson, the student will learn about the expanded income statement.

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Tutorial

"Expanded Income Statement"

Source: Instrumental “Drops of H2O ( The Filtered Water Treatment )" by J.Lang (feat. Airtone),” Creative Commons, http://ccmixter.org/files/djlang59/37792

Video Transcription

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Hey everyone, and welcome to our video today on the expanded income statement. So what are today's topics? Well, today's all about the expanded income statement. We're going to do a review of what the expanded income statement is. And then we're going to look at some expanded income statement calculations.

So let's start with the expanded income statement. That's our sales minus cost of goods sold gives us gross profit. We subtract out operating expenses to give us income from operations. And now we would add other revenues or subtract other expenses to get us to net income. So that's our expanded income statement.

So we can dive a little bit deeper into that sales component. So sales is going to be our revenue, so earnings from interest or from the sale of goods or services. So a sale is the selling of inventory by a merchandising business. So we can get revenue from a couple different sources, from the sale of inventory or from earnings from interest.

Now, any sales from goods or services are going to go in that top line. That's going to be our sales. But then we can also have those other revenue items, like our interest revenue, which we would see at the bottom of our expanded income statement.

But let's talk a little bit more about those sales. Let's look at expanding our sales calculation. So sales, starting with our gross sales, subtract out sales returns and allowances. Subtract out discounts. That gets us to our net sales.

So if we take our gross sales, those are our total sales earned. That's our total cash, total credit sales. Sales returns and allowances, that's our contra-revenue account, meaning it reduces sales. And it's tracked separately from sales to preserve our analysis capabilities, so we can compare our sales returns and allowances to our total sales to see what percentage they are, and perform additional analysis.

And the same goes for discounts. It's a contra-revenue account, meaning it reduces our sales. And it's an incentive. It can be offered to improve prompt payment or improve total sales. And it's also tracked separately.

So gross sales minus sales returns and allowances minus discounts gives us our net sales. So that's our expanded sales calculation.

Now let's look at another component of the expanded income statement. OK. So here's our expanded income statement that we saw before. Now let's look at cost of goods sold.

So when you see cost of goods sold on the expanded income statement, there's actually a couple additional calculations that go into that final number. We also have to look at calculating cost of goods purchased, our goods available for sale. And that will help us get to our cost of goods sold.

So now let's do a cost of goods sold calculation. Starting with our beginning inventory, we add cost of goods purchased to give us that goods available for sale. And then we subtract out ending inventory to give us our cost of goods sold. So that's our cost of goods sold calculation.

But we can go even further by looking at cost of goods purchased, starting with our purchases. Well, what are purchases? That's the buying of inventory for resale to customers, or assets such as supplies or equipment for cash or credit. So if we start with our purchases, we would subtract out discounts, subtract out those purchase returns and allowances to give us our net purchases.

We would add freight in. And that's going to give us our cost of goods purchased. So that's how we calculate cost of goods purchased within the cost of goods sold calculation. So now that's our expanded income statement looking closer at the cost of goods sold calculation.

So now let's talk about one final item related to the expanded income statement. Let's talk about expenses. Expenses are costs associated with operating or maintaining a company.

So there can be operating expenses, which you'll see there on our expanded income statement. And they're generally going to be categorized as sales expenses, so expenses that relate to generating our sales, and then general and administrative expenses, which are just general expenses of operating a business. They're not necessarily directly related to generating sales.

But then we also have non-operating expenses. So these would be the expenses that we'd put into that other revenues and expenses category. Those non-operating expenses are listed at the bottom of the income statement. So that's the expense piece of our expanded income statement.

So let's summarize what we talked about today. In a nutshell, we did a review of the expanded income statement. And we looked at expanding some of those income statement calculations. We looked at the expanded sales calculation, cost of goods sold, cost of goods purchased. And we talked about expenses.

I hope everybody enjoyed this video. And I hope to see you next time.

Notes on "Expanded Income Statement"

Terms to Know

Revenue

Earnings from interest or from the sale of goods or services.

Expenses

Costs associated with operating or maintaining a company.

Sale

The selling of inventory by a merchandising business.

Purchase

The buying of inventory for resale to customers, or assets such as supplies or equipment, for cash or credit.