The Income Statement (AQA GCSE Business)

Revision Note

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Structure of the Income Statement

  • An income statement records the income and costs of a business incurred over a period of time (usually one year)

    • The statement is also known as a profit-and-loss account

  • Four types of profit are calculated in the income statement

    • Gross profit, net profit, profit after tax, and retained profit

  • The extract from the income statement for Toys and Trikes PLC shows figures for both 2022 and 2023, which enables year-on-year comparisons to be made

Diagram: income statement for Toys and Trikes Ltd

The Income statement identifies gross, operating and net profit

The Income statement identifies gross, operating and net profit

The main features of the income statement

Sales revenue

  • Money generated through selling goods and services

  • Calculated by Price x Quantity

    • In 2023, Toys and Trikes Ltd earned Sales Revenue of $274,000

Cost of sales

  • The cost of producing or buying in the goods actually sold by the business during a time period

  • They may also be referred to as the cost of goods sold

  • Includes the costs of raw materials, packaging and labour used to produce the goods

    • In 2023, Toys and Trikes Ltd had Cost of Sales of $169,000, which included materials and labour

Gross profit

  • Gross profit is made when revenue is greater than the cost of sales

  • Calculated by Sales Revenue - Cost of Sales

    • The Gross Profit for Toys and Trikes Ltd was therefore $274,000 - $169,000 = $105,000

Operating profit

  • Profit made by a business after all costs have been deducted from revenue

  • Costs are sometimes called expenses or overheads

  • Calculated by Gross Profit - Expenses

    • In 2023, Toys and Trikes Ltd made a gross profit of $105,000 

    • It had expenses of $48,000, which included advertising and equipment

    • The Operating Profit was therefore $105,000 - $48,000 = $57,000

Net profit

  • The income statement for limited companies needs to account for corporation tax paid on net profits

    • In 2023, Toys and Trikes Ltd made a Net Profit of $57,000 

    • The tax payable was $11,000

    • Net profit was therefore $57,000 - $11,000 = $46,000

Examiner Tip

Profit calculations are commonly tested in the exam. Make sure that you can distinguish between the different types of profit, state the formulas, and apply the calculations correctly.

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