The Income Statement (also called the profit and loss statement or profit and loss account) focuses on a company's revenue and expenses for a particular period of time (e.g. monthly, quarterly, or annually).
An income statement is based on the following equation (Profit = Income - Expenses)[1].
Read the following texts:
Try the following questions to check what you have understood.
- A company has annual Sales of $328,000 with Cost of Goods Sold $142,000. What is the company's Gross Profit?
- $470,000
- Try again. Don't forget, (Annual sales) - (Cost of Goods) = (Gross Profit).
- $186,000
- Yes, that's right. (Annual sales) - (Cost of Goods) = (Gross Profit).
- The same company (over the same period of time) spends $76,000 on Salaries and $11,000 on Utilities. What is their income before tax?
- $99,000
- That's correct.(Gross Profit) - (Salaries) - (Utilities) = (Income before tax).
- $87,000
- Try again. (Gross Profit) - (Salaries) - (Utilities) = (Income before tax).
- $65,000
- Try again. (Gross Profit) - (Salaries) - (Utilities) = (Income before tax).
- If income tax is 20%, what is the same company's net income?
- $79,200
- Well done! (Income before tax) - (Income before tax x 20%) = Net Income.
- $72,900
- Try again (Income before tax) - (Income before tax x 20%) = Net Income.
- Your company has annual Sales of $447,000 and Cost of Goods Sold is $199,000. What is your Gross Profit?
- $646,000
- Try again. Remember, (Annual sales) - (Cost of Goods) = (Gross Profit).
- $248,000
- Yes, that's correct. (Annual sales) - (Cost of Goods) = (Gross Profit).
- For the same company (over the same period of time), Salaries are $104,000 and Utilities cost $18,000. What is your Income before tax?
- $122,000
- Try again. (Gross Profit) - (Salaries) - (Utilities) = (Income before tax).
- $126,000
- That's right. (Gross Profit) - (Salaries) - (Utilities) = (Income before tax).
- $370,000
- Try again. (Gross Profit) - (Salaries) - (Utilities) = (Income before tax).
- Now, if income tax is 20%, what is your Net Income
- $25,200
- Incorrect. This is how much Income Tax you have to pay i.e. (Income before tax x 20%).
- $100,800
- Well done!. (Income before tax) - (Income before tax x 20%) = Net Income.
Income statement activity
- Draw up an income statement based on the following figures to determine net profit:
Sales | 629,000 |
Cost of goods sold | 293,000 |
Salary expense | 127,000 |
Utilities expense | 24,000 |
Income tax | 20% |
You can use this template to help you:Item | Income | Expenditure |
---|
Sales | | |
Less Cost of Goods Sold | | |
Gross Profit | | |
Less Salary expense | | |
Less Utilities expense | | |
Income before tax | | |
Less Income Tax Expense | | |
Net Profit | | |
- Click here to reveal the answer.
Item |
Income |
Expenditure |
Sales |
629,000 |
|
Less Cost of Goods Sold |
|
293,000 |
Gross Profit |
336,000 |
|
Less Salary expense |
|
127,000 |
Less Utilities expense |
|
24,000 |
Income before tax |
185,000 |
|
Less Income Tax Expense |
|
37,000 |
Net Profit |
148,000 |
|
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