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  Income Statement Layout

Introduction to Income Statement Layout

The income statement layout will change as per to the sort of business to which it relates. To demonstrate an income statement, let us refer the case of a retail business (i.e. a business which buys goods in their completed state and resells them). This kind of business generally has simple operations and, like a result, the income statement is comparatively easy to understand.

Gross profit

The first part of the income statement is regarded with computing the gross profit for the period. We can see that revenue that occurs from selling the goods is the first item to show. Deducted from this item is the cost of sales (also termed as cost of goods sold) throughout the period. This provides the gross profit that represents the profit from buying and selling goods, with no taking into account another revenues or expenses related with the business.

Operating profit

From the gross profit or other overheads (expenses) that have been acquired in operating the business (wages and salaries, rent and rates and so on) are deducted. The resultant figure is termed as the operating profit for the accounting period. This demonstrates the wealth produced throughout the period from the general activities of the business. It does not take account of some income that the business might contain from activities that are not involved in its general operations.

Profit for the year

We add any non-operating income (like interest receivable) and deduct any interest payable on borrowings made through the business after having established the operating profit, to reach at the profit for the year (or net profit). This is the income which is attributable to the owner(s) of the business and hat will be credited to the equity figure in the statement of financial position. As can be observed, profit for the year is a residual: i.e. the amount remaining after deducting all expenses acquired in producing the sales revenue for the period and taking account of non-operating income.

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