Understanding Financial Statements

What does your income statement tell you? It has provided you with four pieces of valuable information:

1. You sold 100 units at $10 each, bringing in revenues or sales of $1,000.
2. Each unit that you sold cost you $6 - $1 for the treasure chest plus 5 toys costing $1 each. So your cost of goods sold is $600 (100 units × $6 per unit).
3. Your gross profit - the amount left after subtracting cost of goods sold from sales - is $400 (100 units × $4 each).
4. After subtracting operating expenses of $300 - the costs of doing business other than the cost of products sold - you generated a positive net income or profit of $100.