Gross profit is calculated as:

Sales − Cost of sales — Gross profit = Sales − Cost of sales.

Net profit is gross profit minus the:

expenses — Net profit = Gross profit − expenses.

The income statement shows the business's:

profit or loss for a period — It shows profit or loss for the period.

JOMKELAS

Chapter 8

Financial Statements – Part A

The income statement — gross profit, net profit and cost of sales — with an interactive exercise.

Preparation of Financial Statements: the two main statements are the income statement and the statement of financial position (balance sheet).

Key figures

Gross profit = Sales − Cost of sales · Net profit = Gross profit − Expenses
Cost of sales = Opening inventory + Purchases − Closing inventory

These are prepared for sole traders, partnerships, limited companies, clubs and manufacturers.

Remember

Gross profit = Sales − Cost of sales.
The statement of financial position lists assets, liabilities and capital.

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