The Income Statement (or Statement of Operations) is a summary of revenues and expenses, the latter usually broken down (or summarized) by major categories.

Income from operations is an important measure of the entity’s performance, since it represents the pretax income earned (or loss incurred) from the core operations of the business, before considering certain financial costs, other non-operating items, and extraordinary gains or losses.

Other income and expenses include financial costs (interest expense) and other items that are not directly related to the primary purposes of the business.

Extraordinary items are defined as those which are unusual and occur infrequently, and include such losses as those from natural disasters and expropriation of foreign properties. While not extraordinary per se, certain other items, including the results of discontinued operations and the cumulative effects of changes in accounting principles, are also presented separately at the bottom of the Income Statement, where the reader can distinguish them from ongoing results of operations.

Net income or loss is the all-inclusive “bottom line” that reflects all economic activity by the enterprise for the period being reported on (year, quarter, month, etc.), except for transactions with owners. Sales result when a company provides customers those products or services that it is in business to sell.

Cost of Goods Sold represents the cost of producing goods for sale. For example, cost of goods sold in a manufacturing company is comprised of direct labor, direct materials, and overhead.

Gross Profit is a measure of the profit contribution from the sales of products and/or services, before considering administrative overhead.

Selling, General, and Administrative Expenses are costs associated with the sale and delivery of products and the general costs associated with the operation and management of a business, other than those charged to cost of goods sold. Income from Operations is another measure of profitability, equal to gross profit less selling, general, and administrative costs.

Other Income and Expenses arise from transactions not related directly to the primary operations of the business. Items frequently reported in this nonoperating category are dividend income, interest income, and certain gains or losses.

Interest Expense refers to interest paid periodically during the term of a loan by a borrower to the lender for the use of money. Interest expense must be separately stated, usually as a subcategory of other income and expense.

Income Taxes is an estimate of the amount of income tax that will eventually be paid, or has been paid, on the reported earnings.

Extraordinary Items are income or losses of an unusual and infrequent nature.