Income Statement

Income Statement:

• The income statement is a historical record of the trading of a business over a specific period (normally one year). It shows the profit or loss made by the business – which is the difference between the firm's total income and its total costs

What is the income statement:

• A historical record of the trading of a business over a specific period (normally one year)

• Shows the profit or loss made by the business- which is the difference between the firm’s total income and its total costs

The income statement serves several important purposes:

• Allows shareholders/owners to see how the business has performed and whether it has made an acceptable profit (return)

• Helps identify whether the profit earned by the business is sustainable ("profit quality")

• Enables comparison with other similar businesses (e.g. competitors) and the industry as a whole

• Allows providers of finance to see whether the business is able to generate sufficient profits to remain viable (in conjunction with the cash flow statement)

• Allows the directors of a company to satisfy their legal requirements to report on the financial record of the business

The basic structure of a simple income statement:

1. Revenue

2. Cost of Sales

3. Gross Profit

4. Overheads

5. Operating Profit

6. Financial Costs

7. Profit before Tax