the income statement Flashcards
what is the income statement
An income statement shows a business’s financial performance over a specific period, detailing revenue, expenses, and profit.
What are the main components of an income statement?
- revenue
- sales
- gross profit
- net profit
- operating expenses
- operating profit
how is gross profit calculated
Gross Profit = Revenue - Cost of Sales
how is net profit calculated
Net Profit = Gross Profit - Operating Expenses - Other Costs
what does gross profit show
the profit a business makes from selling its products after cost of production
what does net profit show
the overall profitability of the business after all expenses including taxes, interest, operating costs
how can a business improve its gross profit
- increase prices
- economies of scale
- cheaper supply rates
how can a business improve there net profit
- reduce operating expenses e.g. rent, utilities and security
- enter new markets
- reduce debts
why is an income statement important
helps shareholders evaluate the performance of the business and make more informed decisions
difference between gross and net profit
gross profit: profit after cost of sales
net profit: profit after all expenses
what is cost of sales
All costs of production used when manufacturing e.g. raw materials and wages
how do you calculate cost of sales
Opening stock + Purchases - Closing Sales
