Unit 15 - Income Statement / Profit and Loss Statement

An income statement is also referred to as an income and expense statement or the profit and loss statement. It is a document that delivers a snapshot of the profitability of a company during a specified period of time. It will include a notation of the time period in which the statement has been compiled in reference to. Once section of the statement tends to be dedicated to the revenue and income summary that has been subtotaled for the time period. The other portion of the statement is a reflection of the expenses for that same period of time.

It is the difference between the two sides is able to determine whether or not the company has been profitable during the listed period of time. Should the expense exceed income that translates into a company experiencing a loss during that particular business cycle. The purpose behind an income sheet is to provide an avenue for decision makers to properly evaluate the current situation of a company. Creditors utilize these financial statements when making decisions regarding whether or not to grant a loan. Whereas, stock investors use income statements as a means of determining a company’s ability to become a good and solid investment.

EXAMPLE

Ethan’s Electrical Supplies Limited for the period ended 31st December 2011

$ $

Sales 10,000

Opening Stock 2,000

Add Purchases 1,000

Less Closing stock ( 500)

(2,500)

Gross Profit 7,500

Less Expenses

Salaries 1,000

Utilities 500

Rent 1,200

Stationery 200

Advertising 500 (3,400)

Net Profit 4,100

Assignment

Please prepare a profit and loss statement for the year ended 31st December 20x1 in the name of Sean’s Tyre Shop Limited.

Sales $25,000

Stock as at 01.01.20x1 $10,000

Purchases $5,750

Stock as at 12.31.20x1 $7,000

Electricity $3,000

Salaries $5,000

Meals for employees $1,000

Transport $2,500

Cleaning $1,500

Stationery $700

Bank $1,000