How to draw up a statement of financial performance/ income statement?

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After the pupils are able to identify the accounting elements of Assets, liabilities and equity, pupils will be able to draw up a simple statement of financial position.  The next thing is for them to use the other two elements, INCOME and EXPENSES  to draw up the statement of financial performance/income statement.

An Statement of Financial Performance show how much income expenses and Profit or Loss a business has over a period of time -- Accounting period theory

The aim of any business is to make Profit

A business sells goods or provide services to earn income.  In earning the income, it has to incur expenses.

Statement of financial performance measures an important figure called the PROFIT or LOSS for that period, which is the total income of a business less/minus all its expenses.

A simple Statemenjt of financial performance of a Trading business comprises of two portion, ONE PORTION is the Trading and the SECOND PORTION is the Profit and Loss.

Trading  Portionof the Statement of Financial Performance


We will look at the Trading portion.  It comprises of mainly 3 items :-

1 Sales revenue
2. Sales returns
3. Cost of sales

Question 1
Tan Trader has the following extracted from the Trial Balance on 31 March 2020

Sales revenue   $45000
Sales returns     $4500
Cost of sales     $12000

From the information above, we will be able to draw up the Trading portion of the statement of financial performance.

Tan Trader
Statement of financial Performance for the year ended 31 March 2020

$
Sales revenue
45000
Less sales returns
4500
Net Sales revenue
40500
Less cost of sales
12000
Gross Profit
28500

Gross Profit measured how well a Trading business able to sells its goods to create Profit.  The higher the Gross Profit, the greater its ability to sell.

A higher Gross Profit will ensure the business will be able to cover its other expenses


                Gross Profit = Net Sales revenue - Cost of sales

Profit and Loss Portionof the Statement of Financial Performance

When all the income that a business earns is greater than all its expenses, the business has made a Profit for that period.

Profit for the period =Gross Profit + other income - other expenses

{other expenses are all expenses exclude cost of sales]
To distinguish between cost of sales from other expenses, other expenses are also know as operating expenses


Question 2



Now, lets put both the Trading portion and Profit and loss portion together.  

Question 3




For more practice questions on Statement of financial performance, please click here. More practice questions

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