INCOME STATEMENT

For the Year Ended ___________________

$ $
Revenue / Sales Xx
Less: Sales Return/ Return Inwards (xx)
Net Sales Xxx
Cost of Sales
Opening Inventory Xx
Add: Purchases Xx
Less: Purchases Return / Return Outward (xx)
Add: Carriage Inwards Xx
Less: Closing Inventory (xx)
Cost of Sales (xxx)
Gross Profit Xxx
Add: Other Incomes
Commission Received Xx
Rent Received Xx Xxx
Xxx
Less Expenses Xx
Advertisement Costs Xx
Depreciation Xx
Bad Debts Xx
Utility Bills Xx
Wages And Salaries Xx
Rent Paid Xx
Bank Interest Xx (xxx)
Net Profit / Net Loss Xxx / (xxx)

If Gross Profit + Incomes – Loss gives a negative Figure then it is Net Loss
Example
Gross profit 30,000
GP = 30,000 + Incomes 5000
Incomes = 5000 - Expenses (15000)
Net Profit 20000
Expenses = 15000
If GP + Incomes – Expenses gives you a Positive Figure then it is Net Profit.
Opening Inventory is given in the List of Balances whereas closing Inventory is
given in Additional Information.
Ex
GP = 14000
Incomes = 2000
Expenses = 18000
Gross Profit 14000
+Incomes 2000
- Expenses (18000)
Net Loss (2000)

You have to Calculate Depreciation Yourself

Adjustments in Income Statement
Accrued Incomes and Expenses
Accrued means owing. It means that when you have incurred an expense or
earned an income but you have not paid for the expense and you haven’t
received the Income.
Exp Accr. Rent was Accrued for 200
And Paid for 800
Entry in Income Statement will be of 1000.
Inc Accr. Commission receivable was Accrued by 300
And received was 500
Entry in Income Statement will be of 800
Prepaid Incomes and Expenses
Prepaid means that you have paid for expenses before they have incurred and
received for incomes before providing the service.
1. EXP is PP. Rent was pp by 300
Rent Paid – 1500
Entry in Income Statement will be of 1200
2. INC PP. Commission receivable was pp by 400
Commission Received was 2000
Entry in Income Statement will be of 1600
Depreciation
Depreciation is the gradual fall in the value of NCA over time. Depreciation can
be calculated by 3 methods
- Straight Line Method
Depreciation is charged on cost.
Eg. Office Equipment is to be depreciated by 20% on cost.
COST OF Office Equipment = 30000
Depreciation to be charged will be 20% of 30000 = 6000
- Reducing Balance Method / Diminishing Balance Method
Depreciation is Charged on NBV
Eg. Motor Vehicle has to be depreciated at 20% using Reducing Balance
Method.
Cost of MV= 50000
Accumulated Depreciation for Previous years is 20000
This years depreciation will be 20% of (Cost – Acc. Depreciation)
20% of 30000 = 6000
- Revaluation
Opening NBV – Closing NBV
Bad Debts and Provision for Doubtful Debts.
Bad Debts are recorded as an Expense in Income Statement
Eg. Bad Debts are of 500 written off.
Deduct 500 from GP under the description of Bad Debt Written off.
PFDD ( Debts that are considered to turn Bad in the near future )
Formula = (Trade Receivables – Bad Debts) X Percentage of Provision
Example
Trade Receivable = 20000
Bad Debts = 2000
Provision has to be maintained at 5%
5% of (20000-2000)
5% of 18000 = 900
If provision has Increased from previous year then the difference is recorded as
an expense in the Income Statement.
Example
PFDD in 2013 = 500
PFDD in 2014 = 900
It will be recorded as an expense with amount (900-500) = 400
On the Other hand if the PFDD has reduced from previous years the difference
will be recorded as an Income in the Income Statement.
Example.
PFDD in 2013 = 600
PFDD in 2014 = 400
Hence it will be recorded as an Income with the amount ( 600 – 400 ) = 200
Drawings
If drawings are from Goods. Then Subtract the amount of Drawings from
Purchases.