1. Moore Accounting Notes
The Income Statement

2. The statement of comprehensive income [SOCI]
Part 2: The basic steps to follow
Prepared for CXC CAPE Unit 1

3. Step 1: calculate the net sales (turnover)$
TURNOVER:
Sales
less
Sales returns & allowances
net sales
Turnover refers to the net sales/revenue earned from selling the goods or the services provided by the business whether by cash or on credit during the review period.
Allowances refer to the various discounts offered by the business to the customers – e.g discounts allowed
Check IAS 18 REVENUE for more information

4. Step 2: calculate the cost of sales$
inventory b/f
add
purchases
add freight in
less Purchases returns & allowances
net purchases
total goods available for sale
less
inventory c/d
cost of goods sold
[often called the cost of goods sold]
Cost of goods available for sale is
the net value of the stock we started with added to the stock we purchased during the review period after it has been adjusted for; carriage costs; as well as returns and allowances.
The closing inventory refers to the stock of goods that remained unsold at the end of the review period. It must be valued at the lower of its cost and its net realizable value.

5. Step 3: calculate the gross profit$
TURNOVER:
Sales
less
Sales returns & allowances
net sales
inventory b/f
add
purchases
add freight in
less Purchases returns & allowances
net purchases
total goods available for sale
inventory c/d
cost of goods sold
Gross Profit
The gross profit
is simply the income the business earned from its trading activities.
is the difference between the net sales obtained from the goods sold and the cost of selling those goods (trading expenses).
The cost of goods sold may have to be adjusted due to storage expenses – such as warehouse wages

6. Step 4: calculate the operating expenses$
NET SALES
less
COST OF SALES
GROSS PROFIT
EXPENSES:
selling/distribution
administrative
Total expenses
The operating expenses refer to the costs the business incurred in order to effectively provide the goods for sale or to render its services to the customers.
Remember!!!
make adjustments if
Expenses are prepaid
Expenses are outstanding
Expenses are provisional (depreciation, doubtful debts)
Expenses are revised (bad debts, doubtful debts)
The expenses can only be applied to the SOCI if they occurred in the period under review whether or not they have been settled.
See IAS notes on disclosures using the “accrual basis”

7. Step 5: calculate the operating profit$
NET SALES
less
COST OF SALES
GROSS PROFIT
EXPENSES:
selling/distribution
administrative
Total expenses
OPERATING PROFIT
The operating profit refer to net amount remaining with the business after it has paid its operating expenses. It is generally called the profit before interest and tax [PBIT]

8. Step 6: calculate the other income and expenses$
OPERATING PROFIT
OTHER INCOME & EXPENSES
income before taxes
Other incomes and expenses makes reference to the net value of the non-operating activities of the business.
These generally include interest paid on loans, interest received,
rent received, etc.
Remember!!!
IN large companies the term OTHER COMPREHENSIVE INCOME is used where there are several categories of unrealized gains or losses.
Unrealized gains or losses on available-for-sale securities
Unrealized gains or losses on other financial investments
Unrealized gains or losses on pension and retirement benefit plans
Foreign currency adjustments

9. Step 7: calculate the net income$
OPERATING PROFIT
less
OTHER INCOME & EXPENSES
PROFIT BEFORE TAX
CORPORATION TAX (applied)
NET (comprehensive) INCOME
The net income refers to the amount remaining with the business after it has accounted for all of its expenses.
It is determined after the tax (if any) has been applied to the income figure [PBT]

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