The balance sheet provides a snapshot of the business's assets, liabilities and owner's equity for a given time. It's computed by subtracting taxes paid from net income before taxes. Net profit after taxes. This is the "bottom line" earnings of the business. Income taxes. This is the total amount of state and federal income taxes paid. The number is computed by adding other income (or subtracting if other expenses exceed other income) to the operating profit. Net profit before taxes. This figure represents the amount of income earned by the business before paying taxes. A net figure is computed by subtracting other expenses from other income. Interest expense on debt is also included in this category. For instance, a clothing maker doesn't normally earn income from rental property or interest on investments, so these income sources are accounted for separately. Other income and expenses. Other income and expenses are those items that don't occur during the normal course of business operation. It is computed by subtracting the operating expenses from the gross profit. Operating profit. This is the amount of profit earned during the normal course of operations. Examples include vehicles for salespeople or an office computer and phone system. Examples include the purchase of production equipment and machinery and a building that houses a production plant.ĭepreciation is listed with operating expenses if the cost is associated with fixed assets used for selling, general and administrative purposes. Depreciation is listed with cost of goods sold if the expense associated with the fixed asset is used in the direct production of inventory. Whether depreciation is included in cost of goods sold or in operating expenses depends on the type of asset being depreciated. Depreciation is a noncash expense in that the cash flows out when the asset is purchased, but the cost is taken over a period of years depending on the type of asset. The IRS requires certain depreciation schedules to be followed for tax reasons. Depreciation results when a company purchases a fixed asset and expenses it over the entire period of its planned use, not just in the year purchased. Examples include office salaries, insurance, advertising, sales commissions and rent.ĭepreciation. Depreciation expense is usually included in operating expenses and/or cost of goods sold, but it is worthy of special mention due to its unusual nature. Operating expenses. These are the selling, general and administrative expenses that are necessary to run the business. It's calculated as sales less the cost of goods sold. Gross profit. The gross profit represents the amount of direct profit associated with the actual manufacturing of the clothing. These costs include materials used, direct labor, plant manager salaries, freight and other costs associated with operating a plant (for example, utilities, equipment repairs, etc.).
Sales. This is the gross revenue generated from the sale of clothing less returns (cancellations) and allowances (reduction in price for discounts taken by customers).Ĭost of goods sold. This is the direct cost associated with manufacturing the clothing.
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