Financial Statements: Income Statements

An income statement (formerly called a profit and loss account) is one of the two key financial statements you need to understand for GCSE Business Studies. It shows a business's revenue, costs, and profit over a specific period.

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What Is an Income Statement?

An income statement (also called a profit and loss account) is a financial document that summarises a business's income, costs, and profit over a period of time (usually one year).

It answers the fundamental question: Did the business make a profit or a loss?

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Structure of an Income Statement

Item	What It Shows
Revenue (Turnover)	Total income from sales
Cost of sales (COGS)	Direct costs of producing the goods sold (raw materials, direct labour)
Gross profit	Revenue − Cost of sales
Operating expenses	Indirect costs of running the business (rent, wages, marketing, utilities)
Operating profit	Gross profit − Operating expenses
Interest and tax	Cost of borrowing and corporation tax
Net profit	Operating profit − Interest − Tax (the "bottom line")