Prepare income statements for service businesses and trading businesses working from trial balances and additional information
An income statement shows whether a business made a profit or a loss over a period. You build one by taking figures from a trial balance and applying any extra adjustments given in the question.
Formula
Gross Profit = Revenue − Cost of Sales | Cost of Sales = Opening Inventory + Purchases − Closing Inventory | Net Profit = Gross Profit − Expenses
Real World
JD Sports' income statement shows sales revenue at the top, deducts the cost of trainers and clothing bought for resale to give gross profit, then deducts wages and rent to arrive at net profit.
Exam Focus
Apply adjustments (accruals, prepayments, depreciation) before inserting figures into the income statement — unadjusted trial balance figures will lose marks.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
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