Income Statement

• The income statement is a historical record of the trading activity of a business over a specific period (normally 1 year).
• It shows how much profit or loss has been made during that time.
• The first section of the income statement for a trading business describes the core activities, i.e. the buying and selling of goods.
• The income statement shows the profitability of a firm and shows the financial performance of a business for a particular accounting period.
• Income Statement shows revenue, expenses, gains and losses.
• Cost of Sales = Opening Inventory + Purchases - Purchases Returns + Carriage Inwards - Closing Inventory
• Gross Profit = Revenue – Cost of Sales
• Gross Profit = Cost of Sales - Revenue
• Profit/Loss for the year = Gross Profit + Other Income - Expenses
• Other Income refers to any income that the business has earned from sources other than their normal trading activities, e.g. rent received, commission received...
• Expenses refer to the operating costs of the business, e.g. wages and salaries, rent, motor expenses...
• Stationery are everyday items that are bought, used up and replaced during the financial period, e.g. paper, ink, stapler. They are charged as expenses in the Income Statement.
• Revenue - Sales Returns> Cost of goods --> Gross Profit
• Revenue-Sales Returns < Cost of goods --> Gross Loss
• Gross Profit is the profit a company makes after deducting the cost of making and selling its products.
• Gross loss is the total amount of a company's losses from its different activities in a particular period.