Income statements

• Income Statements


  Financial statements that record a firm's transactions, track income and expenditures, ensure regulatory compliance, and provide quantitative financial information for decision making
• Why businesses keep accounts

  • To record financial transactions
  • To track income and expenditures
  • To ensure regulatory compliance
  • To provide quantitative financial information for decision making
• Profit


  Sales revenue - Total cost
• Improving profit


  • Increase sales revenue
  • Cut costs
• Analysing financial statements


  • Important for improving profit
  • Reward for enterprise
  • Reward for risk-taking
  • Source of finance
  • Indicator of success
• Income Statement


  • Also known as earnings statement or profit and loss statement
  • Shows revenues from existing products and services
  • Profit = Sales revenue - Total cost
• Managing your business


  1. Increase sales revenue by selling more products or increasing prices

  2. Reduce costs
• Cumulative profit


  Total profit earned by the business
• Income Statement


  Contains 5 key elements: Sales revenue, Cost of sales, Gross profit, Expenses, Net profit
• Return on Capital Employed (ROCE)


  • Calculates the return (net profit) in terms of capital invested in the business, as a percentage
  • Higher ROCE indicates higher profitability
• Difference between profit and cash

  • Money borrowed by the business does not increase profit
  • Buying a new machine decreases cash but does not decrease profit
  • Sales of goods increase profit but not cash