The Tale of Rahul’s Café: Understanding the Income Statement

Rahul had always dreamed of opening his own café. After years of planning and saving, he finally launched "Café Bliss" in a cozy corner of Mumbai. As a passionate coffee lover, he was confident about his business. But when his accountant handed him an Income Statement, he was puzzled.

📜 "What is this? Looks like a complicated math problem!" Rahul muttered.

Smiling, his accountant, Meera, explained, "This is your business’s report card. It tells you whether Café Bliss is making money or not. Let’s break it down."

1️⃣ Revenue (Sales) – The Top Line

Meera pointed at the first number. “This is your total sales. Every cup of coffee, sandwich, and pastry sold adds up here.”

🔹 Café Bliss Revenue (Jan): ₹5,00,000

Rahul nodded. "So, if I sell more, this number increases?"

"Exactly!" Meera confirmed.

2️⃣ Cost of Goods Sold (COGS) – The Cost of Making Products

"But remember, you had to buy coffee beans, milk, sugar, and other ingredients."

🔹 Cost of Goods Sold (COGS): ₹1,50,000

Meera explained, “This is the cost of what you sell. If you can lower these costs while maintaining quality, you make more profit.”

3️⃣ Gross Profit – What’s Left After Making the Products

Rahul did some quick math:

Gross Profit=Revenue−COGS\text{Gross Profit} = \text{Revenue} - \text{COGS}

🔹 Gross Profit = ₹5,00,000 - ₹1,50,000 = ₹3,50,000

Meera smiled. “This is what’s left after paying for ingredients. But you have other costs too, right?”

4️⃣ Operating Expenses – Keeping the Business Running

Rahul suddenly remembered his rent, electricity, salaries, and marketing costs.

🔹 Rent: ₹50,000
🔹 Salaries: ₹1,00,000
🔹 Electricity & Internet: ₹20,000
🔹 Marketing: ₹30,000

Total Operating Expenses: ₹2,00,000

Meera noted, "These are necessary to run your café, but the lower they are, the better your profits."

5️⃣ Operating Profit (EBIT) – What You Really Earn from Operations

Now Meera showed him another simple formula:

Operating Profit=Gross Profit−Operating Expenses\text{Operating Profit} = \text{Gross Profit} - \text{Operating Expenses}

🔹 ₹3,50,000 - ₹2,00,000 = ₹1,50,000

Rahul grinned, "So this is my café’s actual earning after all expenses?"

“Almost!” Meera replied. “We still have to account for interest and taxes.”

6️⃣ Interest and Taxes – The Final Deductions

Since Rahul had taken a small business loan, he paid ₹10,000 as interest. Plus, he had to pay ₹20,000 in taxes.

🔹 Interest: ₹10,000
🔹 Taxes: ₹20,000

7️⃣ Net Profit – The Bottom Line

Finally, Meera showed Rahul the most important number:

Net Profit=Operating Profit−(Interest+Taxes)\text{Net Profit} = \text{Operating Profit} - (\text{Interest} + \text{Taxes})

🔹 ₹1,50,000 - ₹30,000 = ₹1,20,000

Rahul’s eyes lit up. "So after everything, I actually made ₹1,20,000 this month?"

Meera nodded. "Yes! This is your net profit. If this number is positive, your business is making money."

Here’s the Income Statement for Rahul’s Café in a proper tabular format:

Café Bliss - Income Statement (January)




Key Takeaways from Rahul’s Café Story

✅ Revenue: All sales made
✅ COGS: Direct cost of making products
✅ Gross Profit: Revenue minus COGS
✅ Operating Expenses: Costs to run the business
✅ Operating Profit (EBIT): What’s left after operating costs
✅ Net Profit: The final money Rahul takes home

Rahul leaned back with a big smile. “This income statement isn’t scary at all! It’s actually a story of how my business makes and spends money.”

Meera laughed. “Exactly! Every number tells a story. And now, you know how to read it.”

[Finance]

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