Income Statement

This statement measures performance; how effective and efficient a firm is in using assets to generate revenue and profits. Basic aim: lift revenue and reduce expenses.

It is also called a 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 - operations, human resources or marketing).

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' (and the Triple Bottom Line)

This refers to the final result of business activity: Net Profit. 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