Statement of Comprehensive Income (Edexcel IGCSE Business)

Introduction to the Statement of Comprehensive Income

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

  • It is also known as a profit-and-loss account or income statement
    

  • It is one of the key financial statements provided in the annual report

Structure of the Statement of Comprehensive Income

• Toys & Trikes Ltd's statement of comprehensive income shows revenue, costs and profit for both 2022 and 2023

  • This enables its financial managers to make a year-on-year comparison of performance
    

Diagram: Statement of Comprehensive Income for Toys & Trikes Ltd

The statement of comprehensive income details revenue, costs and expenses over a trading year

Calculations in the Statement of Comprehensive Income

• Two types of profit are calculated in the income statement

Gross Profit

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

• Calculated by Revenue - Cost of Sales

  • Revenue is money generated through selling goods and services

    • Calculated by Quantity sold x Selling price
      
      

  • Cost of Sales is the cost of raw materials and labour used in producing or buying in the goods actually sold by the business during a time period

    • Calculated by Variable Cost per unit x Quantity Sold
      
      

• In 2023, Toys & Trikes Ltd earned revenue of $274,000 and its cost of sales was $169,000 
  

  • Gross Profit was therefore

    $274,000 - $169,000 = $105,000
    

Operating Profit

• Operating profit is profit made by a business after all costs have been deducted from revenue
  

• Calculated by Gross Profit - Expenses

  • Expenses are costs that are not directly related to the production of goods or purchasing stock for sales
    

• In 2023, Toys & Trikes Ltd made a gross profit of $105,000 and had expenses of $48,000

  • Operating Profit was therefore

    $105,000 - $48,000 = $57,000

Interpreting the Statement of Comprehensive Income

Comparing Toys & Trikes Ltd's Performance over time

Revenue

• Revenue increased by $8,000 between 2022 and 2023

• This may be due to increased sales volume, higher prices or a combination of the two

Cost of Sales

• Cost of sales increased by $15,000 between 2022 and 2023

• This may be due to suppliers increasing prices, buying better quality supplies or increased wastage

Gross Profit

• Gross profit fell by $3,000 between 2022 and 2023

• This is as a result of the increased cost of sales

Expenses

• Expenses increased by $4,000 between 2022 and 2023

• This may be as a result of increased salaries, higher utilities costs or rent increases

Operating Profit

• Operating profit fell by $7,000 between 2022 and 2023

• This is as a result of both higher cost of sales and increased expenses

• Finance managers analyse and interpret this data in order to make beneficial changes or set new strategic objectives

Questions to Consider when Analysing & Interpreting the Statement of Comprehensive Income