Income Statement Format

The income statement format separates income into three levels for a more thorough analysis of each area of the business. These levels of income are called gross profit margin, operating profit margin, and net profit margin.

Gross Profit Margin

Operating Margin

Net Profit Margin

The income statement format also separates revenue from the main operations of the business, called operating income, from revenue incidental to the business. Similarly, the income statement separates expenses incurred from the main operations of the business, called operating expenses, from those expenses that do not directly contribute to the generation of revenue.

Sunny Sunglasses Shop
Income Statement
For the Year Ending
December 31, 2010

Since Sunny Sunglasses Shop sells sunglasses, the main operating revenue of $144,000 is from sales. Repairing sunglasses, called “Repair Revenue,” is incidental to the business and categorized outside of operating income.

Similarly, accountants do not consider interest and taxes as an operating expense, and separate it from the main operating expenses of the business. All income and expenses, however, filter down to the final bottom line, called net income.

The Income Statement Format

The income statement separates gross income, operating income, and net income. These levels of income are measured as: gross profit margin operating profit margin net profit margin The income statement also distinguishes between operating revenue, revenue generated from the main operations of the business, from non-operating revenue. Similarly, the income statement also separates operating expenses, those expenses required to support the main operations of the business, from non-operating expenses. Income Taxes and interest are considered non-operating expenses.

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