A common component of the income statements of both trading and service businesses is expenses.
The term "expenses" refers to the costs incurred by a business in its day-to-day operations to generate revenue. In the context of income statements for both trading and service businesses, expenses are a common component.
For a trading business, which involves buying and selling physical goods, expenses may include the cost of goods sold (COGS), which represents the direct costs associated with producing or purchasing the goods that are sold.
In the case of a service business, which provides intangible services rather than tangible goods, expenses might encompass various operational costs such as wages for employees, rent for office space, utilities, and other general overhead expenses.
In both scenarios, understanding and categorizing expenses are crucial for calculating the net income of a business. Net income is calculated by subtracting total expenses from total revenues. Therefore, expenses are a fundamental element in determining the profitability and financial performance of both trading and service businesses.