Understanding Income Statement
Income statement (US English) also known as Profit and Loss Account (UK English) which helps investors and creditors determine the past financial performance of the enterprise, predict future performance, and assess the capability of generating future cash flows through report of the income and expenses.
From my experience in teaching this topic, students often confuse with the format of Trading Account, Profit & Loss Account and Income Statement. I always tell my students that the ultimate goal for us to prepare Trading Account is to find the Gross Profit. Profit & Loss Account is for us to find the net profit. Therefore, when we combine both Trading Account and Profit & Loss Account, we have this Income Statement. The final goal for us to get the NET PROFIT of the business.
These Business Studies notes are based on the Textbook: Business Studies (Fourth Edition) by Karen Borrington and Peter Stimpson.
This chapter will explain:
- Why businesses need to keep accounting records such as income statements.
- Why profits are not the same as cash.
- Why profits are important.
- The difference between gross, net and retained profit.
- What the income statement contains.
Chapter 23 Income Statement by SamanthaYau