Introduction to entrepreneurship/IENT103/Statements/Income

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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].


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Required reading


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Quiz

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.



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Income statement activity
  • Draw up an income statement based on the following figures to determine net profit:

    Sales629,000
    Cost of goods sold293,000
    Salary expense127,000
    Utilities expense24,000
    Income tax20%

    You can use this template to help you:
    ItemIncomeExpenditure
    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



  1. BusinessDictionary