Topic
Financial Statements Part A
LO
Understand and apply the format
of an income statement of a
trading business.
Key words
• An income statement is a statement prepared for a trading period
to show the gross profit and profit for the year.
• a trading section in which the gross profit of the business is
calculated
• • a profit and loss section in which the profit for the year of the
business is calculated.
Recap: Formula
• Sales – Cost of sales = Gross profit
• Cost of sales = Opening inventory + Net purchases – Closing
Inventory
• Net purchases = purchases – purchase return – goods for own
use + carriage inwards
OR
COGS= opening inventory + purchases + carriage inwards –
purchases returns – closing inventory
Trading Account Section Of The Income
Statement
• The trading account is concerned with buying and
selling, and its purpose is to calculate the profit
earned on the goods sold.
• This is known as gross profit.
• The formula for calculating gross profit is:
Gross profit = Selling price of goods - cost of
sales
Profit & Loss Account Section Of The Income
Statement
• The profit and loss account is concerned with profits
and losses, gains and expenses.
• Its purpose is to calculate the final profit after all
running expenses and other items of income.
• This is known as the profit for the year or the net profit.
• The formula for calculating gross profit is:
Net profit = Gross profit + other income - Expenses
Format Details $ $ $
Revenue (sales) Amt
Less sales return (Amt) Amt
Less cost of sales
Opening inventory Amt
Purchases Amt
Less purchases return (Amt)
Less goods for own use (Amt)
Carriage inward Amt Amt
Less closing inventory (Amt) Amt
Gross profit Amt
Details $ $ $
Gross profit Amount
Add discount received Amt
Amt
Less discount allowed Amt
Wages Amt
General expenses Amt
Property tax Amt Amt
Profit from the Amt
operations
Less: Loan interest Amt
Profit for the year (net Amt
profit )
Exam Style
Question 4
Answer
Lesson Objective
•Understand and apply the format of
an income statement of a service
organization
Income Statement Of A Service Business
• A service business is one which does not buy and sell
goods such as an accountant, an insurance company,
a travel agent, a hairdresser and so on.
• At the end of the financial year, these businesses still
need to prepare financial statements.
• However, the trading account section of the income
statement is not prepared as no goods are bought and
sold.
• Only the profit and loss section of the income
statement and a statement of financial position are
prepared.
• In the income statement all the items of revenue
received such as fees from clients, commission
and other income are credited and expenses are
debited.
• The statement of financial position is exactly the
same as the statement of financial position of a
trading business.
Anita
Income statement for the year ended 30 September 2005
Details $ $ $
Anita
Income statement for the year ended 30 September 2005
Details $ $ $
Commission received 92150
Add rent received 7300 99450
Less Property tax 6400
General expenses 8950
Insurance 2670
Printing & Stationery 4560
Loan interest 1500
Wages 43500 67580
Profit for the year 31870
Review Q2
Piyush
Income statement for the year ended 31 October 2016
Details $ $ $
Commission received 72100
Add Interest received 2900
75000
Less Staff Salaries 28500
Rent 9400
Postage & telephone 5700
expenses
Light & Heat 1100
General expenses 3500
Insurance 800 49000
Profit for the year 26000
Review Q3
Rani
Income statement (profit & loss account section)for the year ended 31
December 2009
Details $ $ $
Gross profit
Add Rent received
Discount received
Less Wages & Salaries
discount allowed
General expenses
Advertising
Motor expenses
Property tax
Loan interest
Loss for the year (net loss )
Rani
Income statement (profit & loss account section)for the year ended 31
December 2009
Details $ $ $
Gross profit 35000
Add Rent received 6000
Discount received 870 6870
41870
Less Wages & Salaries 23000
discount allowed 500
General expenses 13500
Advertising 680
Motor expenses 2550
Property tax 1240
Loan interest 1000 42470
Loss for the year (net loss ) 600
Plenary
Plenary answers
• 1. C
• 2. C
• 3. B