How does the Income statement report a firm's profitability

The balance sheet shows the firm's financial position at a certain point in time. The income statement summarizes the firm's revenues and expenses and shows its total profit or loss over a period of time. Most companies prepare monthly income statements for management and quarterly and annual statements for use by investors, creditors, and other outsiders. The primary elements of the income statement are revenues, expenses, and net income (or net loss). The income statement for Delicious Desserts for the year ended December 31, 2018, is shown in Table 14.2.

Income Statement for Delicious Desserts
Delicious Desserts, Inc.
Income Statement for the Year Ending December 31, 2018
Revenues
Gross sales $275,000
Less: Sales discounts 2,500
Less: Returns and allowances 2,000
Net sales $270,500
Cost of Goods Sold
Beginning inventory, January 1 $ 18,000
Cost of goods manufactured 109,500
Total cost of goods available for sale $127,500
Less: Ending inventory December 31 15,000
Cost of goods sold 112,500
Gross profit $158,000
Operating Expenses
Selling expenses
Sales salaries $31,000
Advertising 16,000
Other selling expenses 18,000
Total selling expenses $ 65,000
General and administrative expenses
Professional and office salaries $20,500
Utilities 5,000
Office supplies 1,500
Interest 3,600
Insurance 2,500
Rent 17,000
Total general and administrative expenses 50,100
Total operating expenses 115,100
Net profit before taxes $ 42,900
Less: Income taxes 10,725
Net profit $ 32,175

Table 14.2

Source: OpenStax, https://openstax.org/books/introduction-business/pages/14-5-the-income-statement
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