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|
|Cost of sales|
|Less closing stock
|Rents and rates||£50,000|
|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