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Accounting

The income statement: from the sale to the net profit

Four subtotals, and each answers a different question. Read only the last one and you lose everything the first three were telling you.

6 min readTicuenta
The waterfall, in order: sales less cost of sales gives the gross profit; less selling and administrative expenses gives the operating profit; with finance and non-recurring items you reach the profit before tax; and subtracting income tax, the net profit.

What question each subtotal answers

  • Gross profit — does the product leave a margin?

    Sales against cost of sales alone. If this line is weak, no cost-cutting saves the year: the problem is in the price or in the cost.

  • Operating profit — does the business work?

    With the structure already deducted: sales staff, rent, administrative payroll. It is the line that measures the business itself, without interest and without one-off items.

  • Profit before tax — how much does the debt weigh?

    This is where finance income and expense come in. A business that trades well but pays a lot of interest shows up exactly in the gap between these two subtotals.

  • Net profit — what is left?

    After income tax. It is the one that goes to equity at the close.

An account in the wrong section changes the diagnosis. If a selling expense lands in administration, the operating profit does not change, but the two lines compared against last year do. And if a finance expense lands in administrative expenses, the operating profit worsens without the business having changed at all.

Why it is ordered “by function”

Presenting expenses by function — cost of sales, selling, administrative — is what lets you see the margin step by step. The alternative is grouping them by nature (wages, depreciation, services), which is useful for other things but does not show where the margin is lost.

₡10,000,000SalesLess ₡6,000,000 of cost
₡4,000,000Gross profitLess ₡2,800,000 of expenses
₡1,200,000Operating profitBefore finance items
With round numbers it is easier to see where the margin lives.

Comparing it with last year is half the value

An income statement on its own says little. Put beside the same period last year, with the variation in colones and in percentage, it points only at what moved — which is exactly what has to be explained.

Careful: this profit is not what income tax is paid on

The accounting net profit and the taxable income are two different figures. There are recorded expenses the law does not admit, and tax adjustments that appear in no entry. You start from the accounting figure, yes, but you reach the tax one by adding and subtracting. The closed list of what does not deduct.

From Ticuenta

The month's result without waiting for the close

The income statement comes out of the entries, with a comparative against any period and an Excel export.

See how it works

About this article. The presentation of the period's result is in section 5 of the IFRS for SMEs. The step from accounting profit to taxable income is governed by the Income Tax Act and its regulation.

Verified as of 24 September 2026. Rules change. This is information, not accounting or tax advice.

Sources: IFRS for SMEs (IFRS Foundation) Current legal texts (Sinalevi)

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