{"id":426,"date":"2025-02-10T10:41:00","date_gmt":"2025-02-10T10:41:00","guid":{"rendered":"https:\/\/www.experlu.co.uk\/dictionary\/?p=426"},"modified":"2025-03-25T10:45:57","modified_gmt":"2025-03-25T10:45:57","slug":"income-statement","status":"publish","type":"post","link":"https:\/\/www.experlu.co.uk\/dictionary\/income-statement\/","title":{"rendered":"Income statement"},"content":{"rendered":"\n

The income statement shows financial performance over time. It is also commonly known as a profit and loss account or statement of Financial Performance. Incorporating all revenues earned in business and subtracting all expenses, the ascertainment of profit or loss is possible. The income statement is a primary statement along with the balance sheet, the cash flow statement and statement of changes in equity. <\/p>\n\n\n\n

Reasons for preparing an Income Statement <\/h2>\n\n\n\n

There are several reasons why a company generates an income statement: <\/p>\n\n\n\n

\u25cf To show total earnings made during the period 
\u25cf The estimation of the total costs 
\u25cf To calculate the profit\/loss reported for the period 
\u25cf Legal reasons (all limited companies are required to produce an income statement) 
\u25cf Taxation Explanations (by calculating profits (or losses), businesses can accurately calculate their tax payments) 
\u25cf Calculation of sales costs 
\u25cf Comparison with past years performance or with other companies<\/p>\n\n\n\n

Main Components of an income statement <\/h2>\n\n\n\n

The primary components of the statement of revenue are: <\/p>\n\n\n\n

1. Sales\/ Turnover:\u00a0<\/strong>This\u00a0is\u00a0the\u00a0overall\u00a0amount of\u00a0the\u00a0items\u00a0sold.\u00a0
2. Cost\u00a0of\u00a0Goods\u00a0Sold\u00a0(COGS):\u00a0<\/strong>This\u00a0is\u00a0the\u00a0direct\u00a0cost\u00a0incurred to make a sale,\u00a0like\u00a0the\u00a0raw\u00a0materials, direct\u00a0labour.\u00a0
3. Gross profit:\u00a0<\/strong>Gross profit\u00a0net sales less\u00a0cost of goods sold.\u00a0Net sales number is turnover net of VAT<\/a><\/strong>, trade discounts and sales returns\/ refunds.\u00a0\u00a0
4. Administrative expenses:\u00a0<\/strong>These include all the indirect costs, such as rent, salaries, depreciation, marketing, selling\u00a0costs\u00a0and utilities, incurred by the\u00a0business.\u00a0
5. Profit\/ loss before tax:\u00a0<\/strong>It\u00a0is\u00a0gross profit<\/a><\/strong>, less administrative expenses.\u00a0\u00a0
6. Profit after tax:\u00a0<\/strong>It is\u00a0<\/strong>profit\/loss\u00a0before tax less tax.\u00a0\u00a0<\/p>\n\n\n\n

Example<\/strong> <\/p>\n\n\n\n

ABC ltd<\/strong> <\/td><\/tr>
Income statement<\/strong> <\/td><\/tr>
For the year ended 31 December 2020<\/strong> <\/td><\/tr>
 <\/td>Amount in GBP <\/span><\/td><\/tr>
Sales <\/td>100,000 <\/td><\/tr>
Cost of sales <\/td>(40,000) <\/td><\/tr>
Gross profit <\/td>60,000 <\/td><\/tr>
Administrative expenses <\/td>(20,000) <\/td><\/tr>
Profit before tax <\/td>40,000 <\/td><\/tr>
Corporation tax<\/a><\/strong>\u00a0<\/td>(7,600) <\/td><\/tr>
Profit after tax<\/strong> <\/td>(32,400)<\/strong> <\/td><\/tr><\/tbody><\/table><\/figure>\n","protected":false},"excerpt":{"rendered":"

The income statement shows financial performance over time. It is also commonly known as a profit and loss account or statement of Financial Performance. Incorporating all revenues earned in business and subtracting all expenses, the ascertainment of profit or loss is possible. The income statement is a primary statement along with the balance sheet, the cash flow statement and statement of changes in equity.  Reasons for preparing an Income Statement  There are several […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[51],"class_list":["post-426","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-income-statement"],"yoast_head":"\nWhat is income statement?<\/title>\n<meta name=\"description\" content=\"Gain clarity on your business finances with an Income Statement. 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