Business Plan
Income Statement
Income statement explained to the Entrepreneur for his/her new
business
The Income Statement refers to a financial Statement which shows the revenue,
costs, expenses and the profitability of the business.
The entrepreneur needs the Income statement to calculate the gross profit and the
Net profit of his/her business.
The bank wishes to see the Income Statement to assess the profitability of the
business (the Gross Profit and the Net Profit). The bank wishes to see whether the
business will be able to repay the interest on the loan.
Profit and Loss Statement
Details
Rs
Rs
Sales (a)
Less: Costs of Sales (b)
10000
(5000)
Gross Profit (c)=(a)- (b)
5000
Less: Expenses and Losses
Administrative Expenses
Selling and Distribution Expenses
General Expenses
Total expenses (d)
500
300
200
(1000)
Net Profit/ PBIT (Profit Before
Interest and Tax) (e)=(c) –(d)
4000
*Less: Interest on Loan (f) (10%5000)
PBT (Profit Before Tax) (g) =(e)-(f)
(500)
3500
*Tax Interest (h)= (15% x (g))
525
Owner’s Equity/ Retained Earnings
(i)=(g)- (h)
2975
*Assuming Interest on Tax is 15% and Interest on Loan is 10% and Amount of loan is Rs5000
Evaluation of the Income Statement
From the above Income Statement, it can be deduced that it is a profitable business;
the Entrepreneur is generating a profit of Rs2975.
The Bank is assured that the Entrepreneur will be able to repay his interest on Loan.
Business Plan
Concept
Total Revenue/ Sales
Revenue
Costs of Sales/Production
Gross Profit
Expenses and losses
Net Profit/PBIT (Profit
Before Interest and Tax)
Interest Expense/ Interest
on Loan
PBT (Profit Before Tax)
Interest on Tax
Owner’s Equity/ Retained
Earnings
Income Statement
Explanation
How to Calculate
It is the Sales or the Turnover
of the business
It is the cost of buying/or the
cost of Production
It is the difference between
the sales revenue and the costs
of sales/ production
The gross profit is not the
ultimate profit because there
are other expenses incurred
when doing the business
The expenses can be divided
into Administrative; Selling and
General Expenses
Sales Revenue=Number of Units
Sold x Selling Price Per Unit
Costs of Sales=Number of Units
produced x unit cost price
Gross Profit= Sales RevenueCosts of Sales
Administrative cost:
Salary
Bills
Rent
Selling:
Advertising
Transport
General Expenses
Repairs and maintenance
Depreciation
Sundry expenses
Net Profit is the difference Net Profit/PBIT= Gross Profitbetween the Gross Profit and Expenses and losses
the Expenses of the business
It is the amount the Interest Expense= Rate of
entrepreneur has to pay on the Interest x Amount Borrowed
amount borrowed from the
bank.
It is the difference between PBT=PBIT-Interest Expense
the PBIT and Interest Expense.
It is a tax calculated on the Interest on Tax (15%) =15% x PBT
profit which is obtained after
interest on loan is paid
It is the ultimate profit which Owner’s Equity/ Retained
the entrepreneur gets at the Earnings= PBT – Interest on Tax
end of the financial year.
Note: It is advisable for the Entrepreneur to take a business loan because interest on loan is
tax deductible (i.e. tax on profit is calculated after the interest on loan has been deducted.