Ever wondered how businesses know if they're actually making money?...
Accounting3 ogledi·Posodobljeno Jun 9, 2026·7 straniUnderstanding the Income Statement: Trading and Profit & Loss Account Explained
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What is an Income Statement?
Think of an Income Statement as your business's financial scorecard. It lists all the money coming in (sales) and all the money going out (expenses) to see what's left at the end. This helps business owners understand if they're actually making money and where their cash is disappearing to.
The statement has some key terms you'll definitely need to know. Sales (or turnover) is the total money from selling goods or services. Cost of sales is what it actually cost to buy the goods that were sold. Then there's opening stock (goods at the start), purchases (new stock bought), and closing stock (unsold goods at the end).
Gross profit is your profit from just buying and selling, calculated as Sales - Cost of Sales. But that's not your final profit yet! Expenses are all your other running costs like rent and electricity. Net profit is your real profit after subtracting all expenses from gross profit.
💡 Remember: Net profit is the most important figure - it shows the real performance of your business!
2
of 7
The Two-Part Structure
Creating an Income Statement isn't as scary as it sounds - it's just two main parts that build on each other. Part 1 is the Trading Account, which calculates your gross profit. Part 2 is the Profit & Loss Account, which finds your final net profit.
The Trading Account focuses purely on buying and selling goods. You start with total sales, then work out your cost of sales using this crucial formula: Opening Stock + Purchases - Closing Stock. This formula tells you the cost of goods that were actually sold (not just bought).
Once you subtract cost of sales from sales, you get your gross profit. This is where Part 1 ends and Part 2 begins.
💡 Top Tip: The Cost of Sales formula is super important for exams - Opening Stock + Purchases - Closing Stock. Write it down and memorise it!
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of 7
Calculating Net Profit & Worked Example
The Profit & Loss Account takes your gross profit and subtracts all other business expenses to find your net profit. List all expenses like rent, wages, insurance, and electricity, add them up, then subtract from gross profit. If you get a negative number, that's a net loss!
Let's see this in action with Conor's sweet shop. He had €800 in sales, bought €350 worth of sweets, started with no stock, ended with €50 worth, and paid €100 rent.
His cost of sales = €0 + €350 - €50 = €300. So gross profit = €800 - €300 = €500. After subtracting €100 rent, his net profit was €400.
💡 Quick Check: Always make sure your layout is neat with proper headings and use brackets for figures being subtracted, like (€50).
4
of 7
Phone Fashions Example
Here's a bigger example with Phone Fashions, which had €25,000 in sales. Their opening stock was €2,000, they bought €12,000 worth of stock, and ended with €3,000 in closing stock. They also had expenses totalling €10,000 (wages, rent, and utilities).
First, calculate cost of sales: €2,000 + €12,000 - €3,000 = €11,000. Then gross profit: €25,000 - €11,000 = €14,000. Finally, net profit: €14,000 - €10,000 = €4,000.
Notice how the layout uses two columns for amounts and clear headings. The title must include the business name and time period covered.
💡 Layout Matters: Your Income Statement needs proper formatting with clear headings, correct order, and two columns for the euro amounts.
5
of 7
Common Mistakes & Exam Tips
Don't mix up gross profit and net profit - gross is just from trading, net is your final profit after all costs. The cost of sales formula trips up loads of students, so practice it until it's automatic: Opening Stock + Purchases - Closing Stock.
Always use brackets for figures being subtracted and make sure your title includes the business name and time period. Layout is crucial in exams - examiners love neat, well-organised statements with proper headings.
Remember the two key formulas: Gross Profit = Sales - Cost of Sales, and Net Profit = Gross Profit - Expenses. If expenses are bigger than gross profit, you've got a net loss on your hands!
💡 Exam Success: Practice the layout and formulas until they're second nature - most marks are lost through poor presentation, not wrong calculations!
6
of 7
7
of 7
Mislili smo, da nikoli ne boš vprašal...
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Naš AI Spremljevalec je orodje umetne inteligence, osredotočeno na dijake, ki ponuja več kot le odgovore. Zgrajen na milijonih virov Knowunity-ja, zagotavlja relevantne informacije, prilagojene načrte učenja, kvize in vsebino neposredno v klepetu ter se prilagaja tvoji individualni poti učenja.
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Aplikacija je res enostavna za uporabo in dobro oblikovana. Našel sem vse, kar sem iskal, in se iz predstavitev ogromno naučil! Aplikacijo bom zagotovo uporabil za razredno nalogo! In seveda mi je tudi super vir navdiha.
Stefan SiOS uporabnik
Ta aplikacija je res kul. Toliko zapiskov za učenje in pomoči [...]. Moj problemski predmet je na primer francoščina, in aplikacija ima toliko možnosti za pomoč. Zahvaljujoč tej aplikaciji sem izboljšal svojo francoščino. Priporočil bi jo vsem.
Samantha KlichAndroid uporabnica
Vau, res sem navdušena. Aplikacijo sem preizkusila, ker sem jo videla oglaševano večkrat, in sem bila popolnoma presenečena. Ta aplikacija je POMOČ, ki jo rabiš za šolo, in ponuja toliko stvari, kot so vaje in povzetki, ki so bili meni osebno ZELO koristni.
AnnaiOS uporabnica
Accounting3 ogledi·Posodobljeno Jun 9, 2026·7 straniUnderstanding the Income Statement: Trading and Profit & Loss Account Explained
Ever wondered how businesses know if they're actually making money? The Income Statement (also called Trading and Profit & Loss Account) is like a business's report card that shows whether it's profitable or losing money over a specific time period.
1
of 7
Registriraj se za ogled vsebine. Brezplačno je!
- Dostop do vseh dokumentov
- Izboljšaj svoje ocene
- Pridruži se milijonom študentov
What is an Income Statement?
Think of an Income Statement as your business's financial scorecard. It lists all the money coming in (sales) and all the money going out (expenses) to see what's left at the end. This helps business owners understand if they're actually making money and where their cash is disappearing to.
The statement has some key terms you'll definitely need to know. Sales (or turnover) is the total money from selling goods or services. Cost of sales is what it actually cost to buy the goods that were sold. Then there's opening stock (goods at the start), purchases (new stock bought), and closing stock (unsold goods at the end).
Gross profit is your profit from just buying and selling, calculated as Sales - Cost of Sales. But that's not your final profit yet! Expenses are all your other running costs like rent and electricity. Net profit is your real profit after subtracting all expenses from gross profit.
💡 Remember: Net profit is the most important figure - it shows the real performance of your business!
2
of 7Registriraj se za ogled vsebine. Brezplačno je!
- Dostop do vseh dokumentov
- Izboljšaj svoje ocene
- Pridruži se milijonom študentov
The Two-Part Structure
Creating an Income Statement isn't as scary as it sounds - it's just two main parts that build on each other. Part 1 is the Trading Account, which calculates your gross profit. Part 2 is the Profit & Loss Account, which finds your final net profit.
The Trading Account focuses purely on buying and selling goods. You start with total sales, then work out your cost of sales using this crucial formula: Opening Stock + Purchases - Closing Stock. This formula tells you the cost of goods that were actually sold (not just bought).
Once you subtract cost of sales from sales, you get your gross profit. This is where Part 1 ends and Part 2 begins.
💡 Top Tip: The Cost of Sales formula is super important for exams - Opening Stock + Purchases - Closing Stock. Write it down and memorise it!
3
of 7Registriraj se za ogled vsebine. Brezplačno je!
- Dostop do vseh dokumentov
- Izboljšaj svoje ocene
- Pridruži se milijonom študentov
Calculating Net Profit & Worked Example
The Profit & Loss Account takes your gross profit and subtracts all other business expenses to find your net profit. List all expenses like rent, wages, insurance, and electricity, add them up, then subtract from gross profit. If you get a negative number, that's a net loss!
Let's see this in action with Conor's sweet shop. He had €800 in sales, bought €350 worth of sweets, started with no stock, ended with €50 worth, and paid €100 rent.
His cost of sales = €0 + €350 - €50 = €300. So gross profit = €800 - €300 = €500. After subtracting €100 rent, his net profit was €400.
💡 Quick Check: Always make sure your layout is neat with proper headings and use brackets for figures being subtracted, like (€50).
4
of 7Registriraj se za ogled vsebine. Brezplačno je!
- Dostop do vseh dokumentov
- Izboljšaj svoje ocene
- Pridruži se milijonom študentov
Phone Fashions Example
Here's a bigger example with Phone Fashions, which had €25,000 in sales. Their opening stock was €2,000, they bought €12,000 worth of stock, and ended with €3,000 in closing stock. They also had expenses totalling €10,000 (wages, rent, and utilities).
First, calculate cost of sales: €2,000 + €12,000 - €3,000 = €11,000. Then gross profit: €25,000 - €11,000 = €14,000. Finally, net profit: €14,000 - €10,000 = €4,000.
Notice how the layout uses two columns for amounts and clear headings. The title must include the business name and time period covered.
💡 Layout Matters: Your Income Statement needs proper formatting with clear headings, correct order, and two columns for the euro amounts.
5
of 7Registriraj se za ogled vsebine. Brezplačno je!
- Dostop do vseh dokumentov
- Izboljšaj svoje ocene
- Pridruži se milijonom študentov
Common Mistakes & Exam Tips
Don't mix up gross profit and net profit - gross is just from trading, net is your final profit after all costs. The cost of sales formula trips up loads of students, so practice it until it's automatic: Opening Stock + Purchases - Closing Stock.
Always use brackets for figures being subtracted and make sure your title includes the business name and time period. Layout is crucial in exams - examiners love neat, well-organised statements with proper headings.
Remember the two key formulas: Gross Profit = Sales - Cost of Sales, and Net Profit = Gross Profit - Expenses. If expenses are bigger than gross profit, you've got a net loss on your hands!
💡 Exam Success: Practice the layout and formulas until they're second nature - most marks are lost through poor presentation, not wrong calculations!
6
of 7Registriraj se za ogled vsebine. Brezplačno je!
- Dostop do vseh dokumentov
- Izboljšaj svoje ocene
- Pridruži se milijonom študentov
7
of 7Registriraj se za ogled vsebine. Brezplačno je!
- Dostop do vseh dokumentov
- Izboljšaj svoje ocene
- Pridruži se milijonom študentov
Mislili smo, da nikoli ne boš vprašal...
Kaj je Knowunity AI spremljevalec?
Naš AI Spremljevalec je orodje umetne inteligence, osredotočeno na dijake, ki ponuja več kot le odgovore. Zgrajen na milijonih virov Knowunity-ja, zagotavlja relevantne informacije, prilagojene načrte učenja, kvize in vsebino neposredno v klepetu ter se prilagaja tvoji individualni poti učenja.
Kje lahko prenesem aplikacijo Knowunity?
Aplikacijo lahko preneseš iz Google Play Store ali Apple App Store.
Je Knowunity res brezplačen?
Tako je! Uživaj v brezplačnem dostopu do učnih vsebin, se povezuj s sošolci in dobi takojšnjo pomoč – vse na dosegu roke.
Najbolj priljubljena vsebina
9IrishIrish oral questions and answers
Questions and answers for the leaving cert oral
5th Year4264
EnglishKey Quotes : Sive
Key Quotes and explanations: Sive
6th Year2842
IrishIrish oral questions
Outline of oral questions
5th Year2055
IrishIníon- le hÁine Durkin
Aine Durkin’s poem, Iníon: Themes & summary
5th Year890
IrishIrish poetry 2027
Iníon + Dínit an Bhróin
5th Year1153
IrishLC HL notes- Iníon (poem)
Includes poem in English and Irish, theme, key words & phrases
5th Year2304
EnglishCultural Context : Shawshank Redemption : Sive : Small Things Like These
Comparative Study : Cultural Context : Shawshank Redemption, Sive and Small Things Like These
6th Year1430
IrishMo Ghrá-sa (Idir Lúibíní)
Notes on mo ghrá-sa
5th Year380
IrishAn Gaeilge Aiste
Irish Language essay
6th Year1320
Ne najdeš tistega, kar iščeš? Razišči druge predmete.
Dijaki nas obožujejo — in tudi ti boš.
4.6/5App Store
4.7/5Google Play
Aplikacija je res enostavna za uporabo in dobro oblikovana. Našel sem vse, kar sem iskal, in se iz predstavitev ogromno naučil! Aplikacijo bom zagotovo uporabil za razredno nalogo! In seveda mi je tudi super vir navdiha.
Stefan SiOS uporabnik
Ta aplikacija je res kul. Toliko zapiskov za učenje in pomoči [...]. Moj problemski predmet je na primer francoščina, in aplikacija ima toliko možnosti za pomoč. Zahvaljujoč tej aplikaciji sem izboljšal svojo francoščino. Priporočil bi jo vsem.
Samantha KlichAndroid uporabnica
Vau, res sem navdušena. Aplikacijo sem preizkusila, ker sem jo videla oglaševano večkrat, in sem bila popolnoma presenečena. Ta aplikacija je POMOČ, ki jo rabiš za šolo, in ponuja toliko stvari, kot so vaje in povzetki, ki so bili meni osebno ZELO koristni.
AnnaiOS uporabnica