Chapter-24 “Income Statements”
Income Statement- is a financial statement that records the income of a business and all
the costs incurred to earn that income over a period of time.
Accounts are the financial records of a firm’s transactions.
Accountants are the professionally qualified people who have responsibility for keeping
accurate accounts and for producing the final accounts.
Final accounts are produced at the end of the financial year and give details of the profit or loss
made over the year and the worth of the business.
How a profit is made:
Profit = Revenue − Costs
Profit is the extra money left after paying all costs.
● If costs are more than revenue, the business makes a loss.
● Profit can grow by:
1. Increasing revenue more than costs
2. Reducing costs
Why Profit Is Important For Private Businesses?
1. Entrepreneurs get paid for their efforts and ideas.
2. Investors get a return after risking their money.
3. Profit helps a business to grow.
4. Profit shows that the business is doing well, encouraging new investors to invest in their
company.
The Difference Between Profit And Cash
Cash is the money available in a business to pay for its bills, buy supplies and other expenses.
Profit is the money overall a business makes after deducting all costs from revenue.
Main Features Of Income Statement
Revenue: is the income a business makes during a period of time from the sale of goods and
services. It is calculated by multiplying the price by the amount of goods sold.
Cost of goods sold: is the cost of making or buying the products a business sells.
It includes things like raw materials and direct labour, but not fixed costs like rent or
advertising.
Gross Profit- is made when the revenue is greater than the cost of sales.
Revenue - COGS
A trading account shows how the gross profit of a business is calculated.
Net profit is the profit made by a business after all costs have been deducted from revenue. It is
calculated by subtracting overhead costs from gross profits.
Depreciation is the fall in the value of a fixed asset over time.
Retained profit is the net profit reinvested back into a company, after deducting tax and
payments to owners, such as dividends.
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