So now let's see the income statement using the multi step income statement format. So the multi step income format income statement format, it's gonna show a few sub totals, it's gonna show some sub totals on our way down to net income. Okay. So it's not just gonna be all our revenues minus all our expenses in any arbitrary order. We're gonna have a specific order that we want to show this stuff. So shows a few sub totals before arriving at net income. Okay? And before we dive into all this, let's look at the bottom of the page, I have an example of what a multi step income statement might look like. Notice we still start with sales at the top, that's our revenue. And then we're gonna start decreasing by different expenses. Maybe other revenues might show later on. But our main revenue or sales revenue stuff is gonna go at the very top still. Right? And we're gonna have these where you see like this gross profit, we're gonna talk about what gross profit is and then we're gonna have this income from operations, right income before income taxes, take out income taxes and then arrive at net income. Alright. So we're gonna go through and see how we get from our top from our sales down to net income in this multi step. So let's go step by step here for all these multi steps. Alright. So first thing we're gonna do is we're gonna calculate gross profit, we're gonna show our sales at the top our sales revenue and we're gonna subtract from sales revenue, the cogs, the cost of goods sold. Okay, so gross profit. This is like the core of our business. If we're thinking about a merchandizing business, a business that sells T shirts, this is gonna tell us the profit from that core business, right? We brought in this much money from selling t shirts and it cost us this much money to buy those t shirts. Right? So this gross profit is just that core core business. And then we're gonna take out our operating expenses. Because if you have a T shirt business, well, it's not so simple of just having a box of T shirts and just selling them, right? You're gonna have expenses for your employees, for the, you know, the warehouse, the storefront, all these things are going to cost money, but it's not that core business. Right? So these are the other expenses that are super necessary to run the business. These are gonna be our operating expenses and these are necessary in the regular course of business. Okay, so inside of operating expenses, here are some examples, you'll see, like payroll for employees, selling expenses for actually selling the goods, general and administrative expenses, rent on the office, you know, general expenses, the phone bills, all sorts of things that you need to run the business and then rent expense, obviously, the rent on the facility. Okay, So we're gonna have all these operating expenses and we're gonna show them all, we're gonna show the categories of operating expenses. And then we're gonna get to another sub total here, it's gonna be the gross profit. Okay, so remember this gross profit is already a sub total, right? We we had taken our revenue, our sales revenue minus our cogs to get to gross profit. And then from gross profit, we're gonna subtract our operating expenses and that's gonna get us to this income from operations. Okay, So income from operations, this is a good number for our for again, our core business, but now it includes those other essential costs, right? Where gross profit was just the focus of the T shirt, selling, right, buying and selling T shirts. Now, it's the actual operation of the business. And then after we get income from operations, we're gonna show all our non operating stuff, right? The business is gonna go through some things, you know, maybe we sell old machinery, that's not the core of our business, but it is a transaction that comes up in business. It's not an operating thing. Alright, So it doesn't come up from operating. So, let's see what some of these non operating activities could be. We could get revenues. Right? So this is another place that where we might see revenues, it's not just at the very top, the very top is showing our core business revenues, like sales of the t shirts or whatever, where we might see some other revenues that we might get just, that can happen happen to come about and we'll see expenses and losses here as well. But remember, these are not in the ordinary course of business. So the first one would be interest revenue is what we call non operating. So if we're, you know, loaning money out or something like that and we get some interest, well, we're not, we're not a bank, right? We're a T shirt company, but we're earning some interest on the side because we had some extra cash, we made alone, whatever it might be. Um we're allowed to do that, right? It's just not our core business. So it would be here in the non operating activities and that would be, you know, interest revenue or dividend revenue, right, dividend revenue would be a situation where, let's say we bought, I don't know, stock in Apple. Apple company. Apple corporation, right? And then Apple pays a dividend. Well, we, the company owns some of that stock, so they have rights to that dividend. That's revenue to the company. But we're not like an investment bank, right? Our business is not earning dividends. Are businesses buying and selling t shirts in this example? Um So that dividend revenue, even though it brought in some money, it's non operating, same goes with rent revenue, right? We're not in the business of being a rental company, but maybe we sublease part of our store to another company or whatever it might be, we could earn some rent. Okay, we'll also see it here. Something called a gain or a loss. Okay. I want to separate the idea of a revenue from a gain or a loss. A gain or a loss usually comes up as a net amount after a sale. So let's say you had some old machinery that was still on your books. And let's say it had a value on your books of 10,000. And you sold that machinery for 20,000. Well, in this case you don't have a revenue of 20,000. We're gonna say you have a gain of the 10,000 that you earned right? The 10,000 extra would be a gain. Okay, so we'll talk about gains and losses a little more later in the course. But this is where they would show up their non operating right in that case, where we're selling machinery were not in the business of buying and selling machinery. It just comes about every now and then. Okay. Non operating. So yeah, like I said, this would come from like selling old equipment, may be selling an investment, anything like that. Alright, interest expense. So when we pay interest on a bank loan, this is another non operating activity. And other losses. We might have some other losses here from an employee. Strike those things aren't gonna come up very often at all. Okay, so there you go. Non operating activities. So finally, we get to our next sub total the income before income taxes notice the income tax expense has not shown up anywhere yet, income tax expense is always the last expense at the bottom. So we have income before income taxes and that's going to be our income from operations. So our last sub total, right, we have income from operations up here, income from operations and I'm gonna put income from ops to to make it fit in that in that spot. Income from operations minus are non operating activity. This gets us to this last sub total which is income before income taxes. And then we're gonna take our income tax expense. So we're gonna have our income before income taxes and then we're gonna subtract the income tax expense and that's the final one. Everything has been accounted for. Now. We've gotten all our expenses in there. Um all our revenues are in there. So we're now at net income, that is our final balance at the bottom. Okay, so let's just see all of this in action right here. So we started with sales at the top And notice some of our discussion from net sales when we were talking about sales returns. So this is net sales right here. So if you guys discuss some of those in your book sales returns, sales discounts, this is where they show up and we would get to a net sales amount, right? We would start with our gross sales subtract out those discounts, those things and get us to this net sales amount of 4.60. Right? So there's our sales and then we subtract from it, cost of goods sold, right? Cost of good soul sales minus cost of goods sold, gets us to our gross profit of 144,000 right there. Right. And from the gross profit, we take out all our operating expenses, notice what we see in their typical things that would happen in operations, paying salary to employees, utilities to run the factory, right, paying our electricity bill, advertising expenses, depreciation expenses, freight out for selling, right? If we had to sell some stuff are selling expense for for the deliveries there, um insurance expense, see all sort of things that are pretty necessary for the business. Right? So we total all those up our total operating expenses right here, 114,000 and it gets us to income from operations of 30 and then here's our non operating stuff right here, right? This is the non operating non operating and we have some revenues and some losses there. Right? We have some interest revenue, some interest expense gain and a loss. Right? So these are non operating things. They're not they don't happen all the time. Okay, So we get those numbers there, we get to an income before income taxes, we take out our income tax and there's our net income. Right? So it's not so complicated. There's just a few steps along the way right after you do a couple of these, um It'll be a no brainer. Alright, let's go ahead and move on to the next video.