GHI Services is preparing its income statement to summarize its financial performance. Arrange the following items in the correct order as they would appear on an income statement... GHI Services is preparing its income statement to summarize its financial performance. Arrange the following items in the correct order as they would appear on an income statement and calculate the totals for each category.
Understand the Problem
The question is asking for assistance in correctly ordering the items for an income statement and calculating the totals for each category to determine net income.
Answer
1. Revenue from Services: $100,000 2. Total Cost of Goods Sold: $30,000 3. Gross Profit: $70,000 4. Total Operating Expenses: $15,000 5. Net Income: $55,000
Answer for screen readers
The correct order for the income statement items is:
- Revenue from Services: $100,000
- Total Cost of Goods Sold: $30,000
- Gross Profit: $70,000
- Total Operating Expenses: $15,000
- Net Income: $55,000
Steps to Solve
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Identify Income Statement Components
An income statement typically includes the following sections:- Revenue
- Cost of Goods Sold (COGS)
- Gross Profit
- Operating Expenses
- Net Income
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List All Given Items
From the question, we can note the following items:- Revenue from Services: $100,000
- Total Cost of Goods Sold: $30,000
- Gross Profit: $70,000
- Total Operating Expenses: $15,000
- Net Income: $55,000
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Arrange the Items in Order
The correct order on the income statement is as follows:- List Revenue from Services first.
- Then, list Cost of Goods Sold (COGS).
- Next, state Gross Profit.
- Follow it with Total Operating Expenses.
- Finally, show the Net Income.
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Calculate the Gross Profit
The Gross Profit is calculated as follows: $$ \text{Gross Profit} = \text{Total Revenue} - \text{COGS} $$ Substituting the values: $$ \text{Gross Profit} = 100,000 - 30,000 = 70,000 $$ -
Calculate Net Income
Net Income is calculated as: $$ \text{Net Income} = \text{Gross Profit} - \text{Total Operating Expenses} $$ Substituting the values: $$ \text{Net Income} = 70,000 - 15,000 = 55,000 $$
The correct order for the income statement items is:
- Revenue from Services: $100,000
- Total Cost of Goods Sold: $30,000
- Gross Profit: $70,000
- Total Operating Expenses: $15,000
- Net Income: $55,000
More Information
The income statement structure helps businesses determine their profitability over a specific period. The Gross Profit represents the income after COGS are deducted from total revenue, while Net Income is the amount earned after all expenses have been subtracted.
Tips
- Confusing Gross Profit with Net Income: Always remember that Gross Profit is calculated before operating expenses are accounted for.
- Not properly arranging the items in the typical order can lead to misunderstanding of the company's financial performance.
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