The Income Statement (AQA GCSE Business)
Revision Note
Written by: Lisa Eades
Reviewed by: Steve Vorster
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 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 Tips and Tricks
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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