This is a basic understanding of Income Statement in business. Slides can be used for IGCSE Business Studies Revision.

1. Income Statement

2. This chapter will explain:
 Why businesses need to keep accounting records such as
income statements
 Why profits are not the same as cash
 Why profits are important
 The differences between gross, net and retained profit
 What the income statement contains

3. Any difference?
Account
Accountant

4. Account Vs Accountant
I am studying IGCSE Accounting.
When I was in Year 10, my
accounting teachers always ask us to
close all the monthly accounts.
I think I am not going to become an
accountant one day!

5. Accounts. This refers to the
financial records of
a firm’s transactions
Accountants. They are the professionally qualified people
who have responsibility
for keeping accurate accounts
and for producing final accounts
Account Vs Accountant

6. Final accounts.
These 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.
(example: Income statement &
Balance Sheet)
Final Accounts

7. Profit = Sales Revenue – Cost of making products
How a Profit is made?
Ways to increase surplus by:
1.Increasing sales revenue more than costs
2.Reducing costs
3.Increasing sales and reducing costs.

8. a) Reward for enterprise
Why is profit important?
The profit gained can reward the owner
due to his hardwork in running the
business.
b) Reward For Risk Taking
The profit gained can give back as
dividend to shareholders due to their
contribution of capital in the business.

9. Why is profit important?
c) Source of finance
d) Indicator success
The profits can kept aside as the retained
profit or for business expansion.
When there’s an increase of profit, this
can be a good sign for the business to
move on.

10. Difference between Profit
and Cash

11. Understanding Income
Statement
Income statement- This is the document that
records the income of a business and all costs
that incurred to earn that income over a period
of time (AKA Profit and Loss Account)

12. Format of Income Statement (Trading
Account)
Sales Revenue = This is the income to a
business during a period of time from the sale
of goods and services
Cost of goods sold= This is the cost of
producing or buying in goods actually sold by
the business during a time period
Gross profit= This is made when sales revenue
is greater than the cost of goods sold

13. Format of Income Statement (Trading
Account)
Sales Revenue = This is the income to a
business during a period of time from the sale
of goods and services
Cost of goods sold= This is the cost of
producing or buying in goods actually sold by
the business during a time period
Gross profit= This is made when sales revenue
is greater than the cost of goods sold
Gross Loss?

14. Format of Income Statement (Trading
Account)
Trading Account= This shows how the gross
profit of a business is calculated

15. Trading Account
Sales Revenue = This is the income to a
business during a period of time from the sale
of goods and services
Cost of goods sold= This is the cost of
producing or buying in goods actually sold by
the business during a time period
Gross profit= This is made when sales revenue
is greater than the cost of goods sold
Gross Loss?

16. Sell Bread Rolls
Example of cost of goods sold?
Sausages
Bread
Butter
Bread scrumb
Cooking oil
Raw materials

17. Sell Bread Rolls
Selling price?
RM_2.00 @ 100 bread rolls
Sales Revenue= RM 200

18. Sell Bread Rolls
Selling price?
RM_2.00 @ 100 bread rolls
Sales Revenue= RM 200
Cost of goods sold?
Sausages ??
Bread ??
Butter ??
Bread scrumb ??
Cooking oil??
Cost of goods sold= RM50
Gross Profit?
RM200 – RM50= RM150

19. Format of Income Statement (Profit
and Loss Account)
Net profit= This is the profit made by a
business after all costs have been deducted
from sales revenue. It is calculated by
subtracting overhead costs from gross profit.

20. Sell Bread Rolls
Sales Revenue= RM 200
Cost of goods sold= RM50
Gross Profit = RM150
Add: Income
Less: Expenses
Salary
Electricity
Water
Rental
Net Profit = RM 20

21. Other terms
Depreciation = This is the fall of value of a fixed
asset over time.
Retained profit = This is the net profit
reinvested back into a company after deducting
tax and payments to owners , such as dividend.

22. Profit and Loss account
Sales
Less: Cost of goods sold
Add: Income
Less: Expenses

23. Question:
Sales ?
Cost of making sales 700
Gross profit 300
Overheads ?
Net profit 100

24. Question:
Calculate the P&L account
Ping Yung has kept records of the sales and costs involved in
running his bicycle shop:
Purchases of bicycle to resell: $80 000
Energy costs of running business: $10 000
Advertising : $2 000
Wages: $10 000
Sales of bicycle :$150 000
Rent on premises : $10 000

25. Trading and Profit & Loss account
Sales
Less: Cost of goods sold
Gross profit
Add: Income
Less: Expenses
Net profit