The Main Features of an Income Statement (Cambridge International IGCSE Business)

An introduction to income statements

Spec point — • Main features of an income statement, e.g. revenue, cost of sales, gross profit, profit and retained profit

• 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

Income statement for Toys and Trikes Ltd

Four different types of profit are calculated in an income statement

The main features of an 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

• Includes the costs of raw materials 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

Net profit

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

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

Profit after tax

• 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
  • The Profit after Taxes was therefore $57,000 - $11,000 = $46,000

Retained profit

• Profit remaining for reinvestment into the business after any dividends have been distributed to shareholders

  • In 2023, Toys and Trikes Ltd made a Profit after Tax of $46,000* *
  • The dividends payable were $22,000
  • The Retained Profit was therefore $46,000 - $22,000 = $24,000