Income Statements: Income Statements (Copy)
Cheat Sheet: 5.3.2 Income Statements
Main Features of an Income Statement
| Term | Definition | Formula | Example |
|---|---|---|---|
| Revenue (Sales) | Total income from sales | Price × Quantity | $10 × 1000 = $10,000 |
| Cost of Sales (COGS) | Direct costs of producing goods sold | Opening stock + Purchases – Closing stock | $2000 + $5000 – $1000 = $6000 |
| Gross Profit | Profit before expenses | Revenue – COGS | $10,000 – $6000 = $4000 |
| Expenses | Indirect costs (wages, rent, admin) | Salaries, marketing | $2500 |
| Profit for the Year (Net Profit) | Gross Profit – Expenses | $4000 – $2500 = $1500 | |
| Retained Profit | Profit kept in business after tax & dividends | Net Profit – Dividends | $1500 – $500 = $1000 |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course
Example Layout (Simple Income Statement)
| Income Statement | $ |
|---|---|
| Revenue | 10,000 |
| Cost of Sales | (6000) |
| Gross Profit | 4000 |
| Expenses | (2500) |
| Profit for the Year | 1500 |
| Dividends | (500) |
| Retained Profit | 1000 |
Uses of Income Statements in Decision-Making
| Decision | How Profit Data Helps | Example |
|---|---|---|
| Cost control | High expenses = cut costs | Reduce marketing spend if too high |
| Pricing | If gross profit margin is low, adjust prices | Raise price to cover costs |
| Expansion plans | Profits reinvested for growth | Use retained profit to open new branch |
| Investor confidence | Attract shareholders if profit high | Apple publishes profits to attract investors |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course
Quick Revision Bullets
- Income statement shows Revenue → Gross Profit → Net Profit → Retained Profit
- Gross profit = Revenue – COGS
- Net profit = Gross Profit – Expenses
- Retained profit = Net Profit – Dividends
- Used for pricing, cost control, investment, attracting finance
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course