Ever wondered how businesses know if they're actually making money?...
Accounting3 zobrazenia·Aktualizované Jun 9, 2026·7 stránkyUnderstanding the Income Statement: Trading and Profit & Loss Account Explained
1 / 7
1
of 7
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!
3
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
Mysleli sme si, že sa už nikdy neopýtaš...
Čo je Knowunity AI companion?
Náš AI Companion je AI nástroj zameraný na študentov, ktorý ponúka viac ako len odpovede. Postavený na miliónoch zdrojov Knowunity poskytuje relevantné informácie, personalizované študijné plány, kvízy a obsah priamo v chate, prispôsobujúc sa tvojej individuálnej ceste učenia.
Kde si môžem stiahnuť aplikáciu Knowunity?
Aplikáciu si môžeš stiahnuť z Google Play Store a Apple App Store.
Je Knowunity naozaj zadarmo?
Presne tak! Užívaj si bezplatný prístup k študijnému obsahu, spájaj sa s ostatnými študentmi a získaj okamžitú pomoc – všetko na dosah ruky.
Najobľúbenejší obsah
9
IrishIrish 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
Nenašiel si, čo hľadáš? Preskúmaj iné predmety.
Študenti nás milujú — a ty budeš tiež.
4.6/5App Store
4.7/5Google Play
Appka je veľmi jednoduchá na používanie a má super dizajn. Zatiaľ som našiel všetko, čo som hľadal, a naučil sa veľa z prezentácií! Určite ju použijem na školskú úlohu! A samozrejme mi to aj veľmi pomáha ako inšpirácia.
Stefan SiOS používateľ
Táto appka je naozaj skvelá. Je tu toľko študijných poznámok a pomoci [...]. Môj problémový predmet je napríklad francúzština a appka má toľko možností pomoci. Vďaka tejto appke som si zlepšil francúzštinu. Odporúčal by som ju každému.
Samantha KlichAndroid používateľka
Wow, som naozaj ohromený. Vyskúšal som túto appku, lebo som ju videl mnohokrát inzerovať a bol som úplne ohromený. Táto appka je TÁ POMOC, ktorú chceš do školy a hlavne ponúka toľko vecí, ako cvičenia a faktové listy, ktoré mi osobne VEĽMI pomohli.
AnnaiOS používateľka
Accounting3 zobrazenia·Aktualizované Jun 9, 2026·7 stránkyUnderstanding 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
Zaregistruj sa, aby si videl obsah. Je to zadarmo!
- Prístup ku všetkým dokumentom
- Zlepši si známky
- Pridaj sa k miliónom 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 7Zaregistruj sa, aby si videl obsah. Je to zadarmo!
- Prístup ku všetkým dokumentom
- Zlepši si známky
- Pridaj sa k miliónom 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 7Zaregistruj sa, aby si videl obsah. Je to zadarmo!
- Prístup ku všetkým dokumentom
- Zlepši si známky
- Pridaj sa k miliónom 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 7Zaregistruj sa, aby si videl obsah. Je to zadarmo!
- Prístup ku všetkým dokumentom
- Zlepši si známky
- Pridaj sa k miliónom 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 7Zaregistruj sa, aby si videl obsah. Je to zadarmo!
- Prístup ku všetkým dokumentom
- Zlepši si známky
- Pridaj sa k miliónom 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 7Zaregistruj sa, aby si videl obsah. Je to zadarmo!
- Prístup ku všetkým dokumentom
- Zlepši si známky
- Pridaj sa k miliónom študentov
7
of 7Zaregistruj sa, aby si videl obsah. Je to zadarmo!
- Prístup ku všetkým dokumentom
- Zlepši si známky
- Pridaj sa k miliónom študentov
Mysleli sme si, že sa už nikdy neopýtaš...
Čo je Knowunity AI companion?
Náš AI Companion je AI nástroj zameraný na študentov, ktorý ponúka viac ako len odpovede. Postavený na miliónoch zdrojov Knowunity poskytuje relevantné informácie, personalizované študijné plány, kvízy a obsah priamo v chate, prispôsobujúc sa tvojej individuálnej ceste učenia.
Kde si môžem stiahnuť aplikáciu Knowunity?
Aplikáciu si môžeš stiahnuť z Google Play Store a Apple App Store.
Je Knowunity naozaj zadarmo?
Presne tak! Užívaj si bezplatný prístup k študijnému obsahu, spájaj sa s ostatnými študentmi a získaj okamžitú pomoc – všetko na dosah ruky.
Najobľúbenejší obsah
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
Nenašiel si, čo hľadáš? Preskúmaj iné predmety.
Študenti nás milujú — a ty budeš tiež.
4.6/5App Store
4.7/5Google Play
Appka je veľmi jednoduchá na používanie a má super dizajn. Zatiaľ som našiel všetko, čo som hľadal, a naučil sa veľa z prezentácií! Určite ju použijem na školskú úlohu! A samozrejme mi to aj veľmi pomáha ako inšpirácia.
Stefan SiOS používateľ
Táto appka je naozaj skvelá. Je tu toľko študijných poznámok a pomoci [...]. Môj problémový predmet je napríklad francúzština a appka má toľko možností pomoci. Vďaka tejto appke som si zlepšil francúzštinu. Odporúčal by som ju každému.
Samantha KlichAndroid používateľka
Wow, som naozaj ohromený. Vyskúšal som túto appku, lebo som ju videl mnohokrát inzerovať a bol som úplne ohromený. Táto appka je TÁ POMOC, ktorú chceš do školy a hlavne ponúka toľko vecí, ako cvičenia a faktové listy, ktoré mi osobne VEĽMI pomohli.
AnnaiOS používateľka