Statement of Comprehensive Income
Statement of Comprehensive Income – financial document showing a firm’s income and expenditure in a particular time period.
The income statement serves several important purposes:
- Allows shareholders/owners to see how the business has performed and whether it has made an acceptable profit (return).
- Helps identify whether the profit earned by the business is sustainable (“profit quality”).
- Enables comparison with other similar businesses (e.g. competitors) and the industry as a whole.
- Allows providers of finance to see whether the business is able to generate sufficient profits to remain viable (in conjunction with the cash flow statement).
- Allows the directors of a company to satisfy their legal requirements to report on the financial record of the business.
How might the statement of comprehensive income be used in decision making?
➔ Investment Decision
➔ Cost analysis
➔ Basis for future forecasts
➔ Making comparisons
| Category | Explanation |
| Revenue | The revenues (sales) during the period are recorded here. Sometimes referred to as the “top line” – revenue shows the total value of sales made to customers |
| Cost of Sales | The direct costs of generating the recorded revenues go into the “cost of sales.” This would include the cost of raw materials, components, goods bought for resale, and the direct labour costs of production. |
| Gross Proft | The difference between revenue and cost of sales. A simple but very useful measure of how much profit is generated from every £1 of revenue before overheads and other expenses are taken into account. Is used to calculate the gross profit margin (%) |
| Distribution & administration expenses | Operating costs and expenses that are not directly related to producing the goods or services are recorded here. These would include distribution costs (e.g. marketing, transport) and the wide range of administrative expenses or overheads that a business incurs. |
| Operating profit | A key measure of profit. Operating profit records how much profit has been made in total from the trading activities of the business before any account is taken of how the business is financed. |
| Finance expenses | Interest paid on bank and other borrowings, less interest income received on cash balances, is shown here. A useful figure for shareholders to assess how much profit is being used up by the funding structure of the business. |
| Profit before tax | Calculated as operating profit less finance expenses |
| Tax | An estimate of the amount of corporation tax that is likely to be payable on the recorded profit before tax |
An example of an income statement is shown below:
| £ | £ | |
| Sales | 100,000 | |
| Less cost of sales | ||
| Opening stock | 10,000 | |
| Add purchases | 40,000 | |
| Subtotal | 50,000 | |
| Less closing stock | 10,000 | 40,000 |
| Gross profit | 60,000 | |
| Less expenses | ||
| Rent | 5,000 | |
| Electricity | 5,000 | |
| Wages | 15,000 | |
| 25,000 | ||
| Proft for the year | 35,000 |
The main contents of the income statement are:
- Sales – This is the total value of the goods sold to customers. In the table above this is £100, 000.
- Cost of sales – This is the direct cost of the goods that have been sold for example the raw materials used to make the product. It is calculated by adding the opening stock to purchases then subtracting the closing stock. It is calculated by adding the opening stock to purchases then subtracting the closing stock. In the table above this is £40, 000.
- Gross profit – This is the difference between the sales and the cost of sales. In the table above this is £60, 000.
- Expenses– This is all the indirect costs incurred by the business such as rent, wages and electricity. In the table above this is £25, 000.
- Profit for the year – The actual profit made by the business after all expenses have been deducted. In the table above this is £35, 000.
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