Statement of Profit or Loss (Cambridge (CIE) A Level Business): Revision Note

The purpose of the statement of profit or loss

• The statement of profit or loss shows the income and expenditure of a business over a period of time - usually a year - and identifies the amount of profit made 

Statement of profit or loss: key terminology and calculations

The structure of the statement of profit or loss

• The statement of profit or loss is divided into three parts

  • The trading account

  • The profit and loss account

  • The appropriation account

An example income statement

The trading account

• The trading account is where the cost of sales is deducted from sales revenue to calculate the gross profit

  • In 2024 Top to Toe Wellbeing Limited's sales revenue was £124.65m and its cost of sales were £18.92m

    • The gross profit for the period was therefore 

$$\begin{gathered} =\pounds 124.65\mathrm{m}-\pounds 18.92\mathrm{m} \\ =\pounds 105.73\mathrm{m} \end{gathered}$$

The profit and loss account

• The profit and loss account deducts a series of expenses to determine the operating profit for the period 

  • In 2024 gross profit was £105.73m and expenses were £39.87m

    • The operating profit was therefore 

  $$\begin{gathered} =\pounds 105.73\mathrm{m}-\pounds 39.87\mathrm{m} \\ =\pounds 65.86\mathrm{m} \end{gathered}$$

  • The business also paid £2.01m interest

    • The profit before tax was therefore

  $$\begin{gathered} =\pounds 65.86\mathrm{m}-\pounds 2.01\mathrm{m} \\ =\pounds 63.85\mathrm{m} \end{gathered}$$

  • The business also paid £13.10m tax

    • The profit after tax for the period was therefore

$$\begin{gathered} =\pounds 63.85\mathrm{m}-\pounds 13.10\mathrm{m} \\ =\pounds 50.75\mathrm{m} \end{gathered}$$

The appropriations account

• The appropriations account shows how profits are distributed for the period

  • In 2024 Head to Toe Wellbeing Limited distributed £13.95m to shareholders as dividends

    • £36.80m was therefore retained as profit

Amending the statement of profit or loss

• Making a change to one section of the statement of profit or loss has an impact on other sections