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

The income statement shows the business has made a gross profit of £320,000 before considering other expenses. It shows a net 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 profit and profit for the year 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