Income Statement

This statement measures performance; how effective and efficient a firm is in using assets to generate revenue and profits.

It is also called an Revenue Statement or a Profit & Loss Statement. 

A Revenue Statement presents a summary of the income earned and the expenses incurred by a business over a period of time.

It enables a firm to be aware of the firm’s performance (whether it is making a profit or not). This can indicate areas of concern (costs).

The five main aspects of a Revenue Statement include: 

• Revenue / sales, 

• Cost of Goods Sold, 

• Gross Profit, 

• Expenses, and 

• Net Profit.

You might have heard the phrase: 'the bottom line'. This refers to the final result of business activity. Is the business profitable?

Note: two columns. 

Middle column for preliminary items; far right column for the 5 main entries of the Revenue Statement.

Key equations include:

COGS = Opening Stock + Purchases - Closing Stock

Gross Profit = Sales - COGS

Net Profit = Gross Profit - Total Expenses