Exam 8: Using Financial Statements to Guide a Business

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1) Revenue. Income from sales of the company's products or services. For companies using the cash method of accounting, sales are recorded when payments are received.
2) COGS (Cost of Goods Sold)/COSS (cost of services sold). These are the cost of the materials to make the product (or deliver the service) plus the costs of the direct labor used to make the product (or deliver the service). An income statement reports total COGS for a period.
3) Gross profit. The results of revenue minus COGS.
4) Other Variable Costs (VC). Costs that vary with sales.
5) Contribution margin. The result of revenues minus COGS and other variable costs, or gross profit minus other variable costs.
6) Fixed Operating costs. Costs that do not vary with sales. The most common are represented by USAIIRD: utilities, salaries, advertising, insurance, interest, rent, and depreciation.
7) Earnings before interest and taxes (EBIT). The result of gross profit minus other variable costs minus fixed costs, except interest and taxes.
8) Pre-Tax Profit. EBIT minus interest costs. This is a business's profit after all costs have been deducted, but before taxes have been paid. Pre-tax profit is used to calculate how much tax the business owes.
9) Taxes. The taxes a business must pay on the income it earns.
10) Net profit/loss: The business's profit or loss before any taxes have been paid.