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High in this session, we will discuss the income statement, it's a really exciting topic, and I really

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hope that you will enjoy it.

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Before we talk about the statement itself, let's ask ourselves, what is the objective of any business?

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Now, if you think of any business in the world, you will notice that the business is there to produce

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a product or service, sell it and make profit.

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So if you think of a dry cleaner.

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It all means to send you the service of cleaning your clothes.

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So sell that service to you, hopefully try to make some profits now in order to produce or make or

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provide any good or service, any business will have to incur some expenses.

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So the dry cleaner, for example, he or she will have to rent a shop.

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So they will pay for some rent.

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They may have to hire people to help them.

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So they would pay salaries.

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They have to pay for electricity and utility bills and so on and so forth.

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So in order to be able to produce or provide a goods or service, you must incur some expenses.

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And once you prepare these services and goods, you going to sell them.

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So selling them will generate some revenue to you.

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So there is a report in business called the Income Statement.

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And in that report, the business will summarises its revenue and expenses for a period of time.

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Now, usually this is prepared at the end of each month.

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So for most of these businesses, at the end of the month, they will prepare the income statement.

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And in that statement, it will show how much revenue they earn throughout the month.

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What was the expenses throughout the month?

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And this is the income statement.

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Let's take this example of a simple business model where we have a drink that now, if we learned this,

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a few details about the business and you can see the business model is to buy the cans of drink from

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a supplier, maybe make them cold and nice to drink and offer them directly to the people walking past

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the area.

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So these are some numbers related to that business.

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Now, if we take one month, which is, for example, January, and we try to figure out how much profit

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did the business make, and to do that, we need to prepare what we call the income statement.

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Remember when we learned last session about the purpose of accounting?

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We said the first question to answer accounting is how much profit did the business make?

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And this is where the income statement comes in.

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So let's see what revenue we made.

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So remember, profit is the difference between revenue and expense.

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So if you're looking at the profit for any business, you need to calculate the revenue, calculate

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the expense and see the difference between the two.

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And in this case, we said Jackson two thousand five hundred counts.

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We know that each car is sold for three pound.

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So in total revenue, he made seven thousand five hundred bound in January.

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Now, what expenses did he end up?

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Now the cost of the accounts he sold, the cost of sales, the cost of goods sold, all different names

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for the same thing will be two thousand five hundred because we know each count he buys from the supplier

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for one pound.

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Now he paid obviously all these other expenses total expense for the month of January three thousand

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eight hundred sixty.

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So if the revenue was seven thousand five hundred on the total expenses, three thousand eight hundred

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and sixty, that means the business made a profit of three thousand six hundred and forty.

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Now it's important to look at some different types of profits.

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The first one, what we call the gross profit, and sometimes we call this the first level of profit.

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And here we only look at the difference between revenue and the cost of sale.

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So we ignore the other expenses.

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We try to look at.

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How much profit did the company make after taking into consideration?

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Only the cost of this is called the gross profit.

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In Jack example, that will be seven thousand five hundred minus two thousand five hundred and that

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will be five thousand.

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The second type of profit is what we call operating profit.

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And here we look at the.

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Revenue minus cost of sales, minus all the expenses or just simply the gross profit minus book, the

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all the expenses.

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So for Jack that will be three thousand six hundred and forty.

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We have another definition or another time, which is the net profit.

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And this is simply just the bottom line, which is the operating profit minus the taxes, and that will

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give you the net profit.

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Now, the income statement structure, there is a way to prepare the income statement.

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So once you identify the account, you know what to include in the income statement, which is revenue,

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cost of sales, then you have your gross profit expenses, operating profit, taxes, net profit.

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This is the structure you need to follow and clearly you need to adhere to these details.

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So you always start with the business name.

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So Jack drinks in this example, we write the name of the statement.

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So that's income statement for and you write what period?

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And then you just write these details.

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Remember the income statement?

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It's more like a video, more like a recording.

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So we recording the transactions for each of these accounts throughout the period.

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So if we look, for example, of the cost of sale and its two thousand five hundred, that means during

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the month of January, the accumulated value of all the financial transactions impacting the cost of

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sin was two thousand five hundred.

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So this is all you need to know above the income statement.

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You should now know what accounts to include in the income statement, why we prepared it and what is

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the structure of the income statement.

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I hope you enjoyed this lecture and I look forward to see you in the next one.

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Thank you very much.