statement-of-profit-or-loss

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The purpose of the statement of profit or loss

The statement of profit or loss shows the income and expenditure of a business over a period of time – usually a year – and identifies the amount of profit made

Statement of profit or loss: key terminology and calculations

Term	Explanation
Sales revenue	Money generated through selling goods and services Calculated using the formula $Price space cross times space Quantity$
Cost of sales	The cost of producing or buying in the goods actually sold by the business during a time period. Also called cost of goods sold Includes raw materials, packaging and direct labour
Gross profit	Made when sales revenue is greater than the cost of sales. Calculated using the formula $Sales space revenue space – space Cost space of space sales$
Expenses	Non-direct costs a business incurs during normal operations, also called overheads Includes salaries, rent, advertising, utilities and depreciation
Profit from operations	Profit made after all direct and indirect costs are deducted from revenue Calculated using the formula $Sales space revenue space – space Cost space of space sales$
Taxation	The amount of money paid to the government based on profit, usually called corporation tax Subtracted after profit from operations to determine final profit
Profit for the year	Profit remaining after tax has been deducted This is the amount available to be distributed to shareholders or retained in the business Calculated using the formula $Profit space from space operations space – space Taxation$
Dividends	The portion of profit paid to shareholders as a reward for their investment
Retained earnings	Profit kept within the business to be used as a source of finance for future investment or growth

The structure of the statement of profit or loss

The statement of profit or loss is divided into three parts
- The trading account
- The profit and loss account
- The appropriation account

An example income statement

Income statement for Top to Toe Wellbeing Ltd, year ending 31st December 2024, showing revenue, costs, profits, dividends, and retained profit. — **An example income statement, showing the trading account, profit and loss account and appropriations account**

The trading account

The trading account is where the cost of sales is deducted from sales revenue to calculate the gross profit
- In 2024 Top to Toe Wellbeing Limited’s sales revenue was £124.65m and its cost of sales were £18.92m
  - The gross profit for the period was therefore

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Business_A-level_Cie

business-and-its-environment