The Income Statement

The income statement shows how much profit a business made over a period.

Cost of sales and gross profit

$$\text{Cost of sales} = \text{opening inventory} + \text{purchases} - \text{closing inventory}$$ $$\text{Gross profit} = \text{revenue (sales)} - \text{cost of sales}$$

Worked example. Opening inventory £5,000, purchases £30,000, closing inventory £4,000: cost of sales $= 5{,}000 + 30{,}000 - 4{,}000 = £31{,}000$. With sales £50,000, gross profit $= 50{,}000 - 31{,}000 = £19{,}000$.