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.
Ethan’s Electrical Supplies Limited for the period ended 31st December 2011
Opening Stock 2,000
Add Purchases 1,000
Less Closing stock ( 500)
Gross Profit 7,500
Advertising 500 (3,400)
Net Profit 4,100
Please prepare a profit and loss statement for the year ended 31st December 20x1 in the name of Sean’s Tyre Shop Limited.
Stock as at 01.01.20x1 $10,000
Stock as at 12.31.20x1 $7,000
Meals for employees $1,000