Components of financial statements – income statements
The income statement is a financial document that demonstrates the financial performance of a business based on its income and how this has changed over a period of time, usually 12 months. The income statement allows shareholders and owners to monitor business performance in line with business objectives and the rest of the industry. The key information shown on an income statement includes information about revenue, cost of sales, and any other expenses, along with gross and net profit.
Example of an income statement:
| £ | £ | |
| Sales Revenue | 500,000 | |
| Cost of sales | 180,000 | |
| Gross Profit | 320,000 | |
| Expenses | ||
| Wages | 100,000 | |
| Rent | 50,000 | |
| Advertising | 60,000 | |
| Total Expenditure | 210,000 | |
| Net Profit | 110,000 |
| Sales Revenue | |
| £ | |
| £ | 500,000 |
| Cost of sales | |
| £ | |
| £ | 180,000 |
| Gross Profit | |
| £ | |
| £ | 320,000 |
| £ | |
|---|---|
| £ |
| Expenses | |
| £ | |
| £ |
| Wages | |
| £ | 100,000 |
| £ |
| Rent | |
| £ | 50,000 |
| £ |
| Advertising | |
| £ | 60,000 |
| £ |
| Total Expenditure | |
| £ | |
| £ | 210,000 |
| £ | |
|---|---|
| £ |
| Net Profit | |
| £ | |
| £ | 110,000 |
- sales revenueThe money received from selling goods and services. is any money received from the sale of goods and services in a business.
- cost of salesThe variable costs incurred as a direct result of making a product or providing a service, eg raw material costs. refers to the variable costs incurred as a direct result of making a product or providing a service, eg raw material costs.
- An expense refers to any other business costs, such as wages, rent, bills and advertising.
- Gross profit is revenue minus the cost of sales. This figure does not take into account any other expenses involved in running a business. The calculation would look like this:
- Gross profit = revenue – cost of sales
- Net profit is last stage of the income statement. Net profit allows a business to measure their overall financial performance to see if they are successful or not in a given time period. The calculation would look like this:
- Net profit = gross profit – total expenses
- Figures are often rounded to a consistent level of accuracy, for example to the nearest pound, or to one decimal place
