Income statement
An income statement shows the business' financial performance over a given time period e.g. one year.
| Income statement for Year Ended 31 March 2019 | ||
| £0 | £0 | |
| Sales revenue | £500,000 | |
| Cost of sales | ||
| Opening stock | £100,000 | |
| Add purchases | £220,000 | |
| £320,000 | ||
| Less closing stock | £140,000 | |
| £180,000 | ||
| Gross profit | £320,000 | |
| Less expenses | ||
| Wages | £100,000 | |
| Rents and rates | £50,000 | |
| Advertising | £60,000 | |
| £210,000 | ||
| Profit for the year | £110,000 |
| Income statement for Year Ended 31 March 2019 |
| £0 |
| £0 |
| Sales revenue |
| £500,000 |
| Cost of sales |
| Opening stock |
| £100,000 |
| Add purchases |
| £220,000 |
| £320,000 |
| Less closing stock |
| £140,000 |
| £180,000 |
| Gross profit |
| £320,000 |
| Less expenses |
| Wages |
| £100,000 |
| Rents and rates |
| £50,000 |
| Advertising |
| £60,000 |
| £210,000 |
| Profit for the year |
| £110,000 |
The income statementA business' financial performance over a given time period. shows the business has made a gross profitThe difference between sales revenue and the cost of making the product sold. of £320,000 before considering other expenses. It shows a net profitThis profit is calculated by deducting all expenses away from gross profit. of £110,000 has been made.
An income statement shows
- Sales revenue - the amount of money received for selling goods or services
- Gross profit - the profit made from buying and selling goods. Gross profit is calculated by deducting cost of sales from sales revenue
- Profit for the year - the profit made after all other operating expenses have been deducted from the gross profit
Purpose of an income statement
- shows the profit/loss made by the company from the buying and selling of goods
- can be used to compare gross profitThe difference between sales revenue and the cost of making the product sold. and profit for the yearThe profit made after all other operating expenses have been deducted from the gross profit. over different years of trading to identify any trends and to aid decision making
- comparisons can be made with similar companies in the same industry
- can be used to compare expenses and sales over the years or between department to see if there are any areas where they can be minimised or improved