The statement of profit or loss Cambridge IGCSE Accounting revision
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In plain words
At the end of the year, the owner wants one number: how much did the business make? The statement of profit or loss works it out in two steps. First, the profit on the goods themselves. Then, what is left after all the running costs.
In papers set up to 2026 this statement is called the income statement. The layout is the same.
6 things to know
- It covers a period of time, so it is headed "for the year ended" a date.
- Trading section: revenue − cost of sales = gross profit. Revenue is sales less sales returns.
- Cost of sales = opening inventory + purchases − closing inventory. Purchases are adjusted first: deduct purchases returns and goods taken by the owner, and add carriage inwards.
- Profit and loss section: gross profit + other income − expenses = profit for the year.
- Other income includes discount received, rent received, commission received and a profit on disposal. Expenses include wages, rent, carriage outwards, discount allowed, depreciation and irrecoverable debts.
- A service business has no trading section. Its statement is simply income less expenses.
Worked example
For the year: sales $90 000, sales returns $2000, opening inventory $8000, purchases $52 000, carriage inwards $1000, closing inventory $9000, discount received $500, expenses $21 500. Calculate the gross profit and the profit for the year.
- Revenue = 90 000 − 2000 = $88 000.
- Cost of sales = 8000 + 52 000 + 1000 − 9000 = $52 000.
- Gross profit = 88 000 − 52 000 = $36 000.
- Profit for the year = 36 000 + 500 − 21 500 = $15 000.
Tips and tricks
- Carriage inwards is part of the cost of the goods, so it goes in cost of sales. Carriage outwards is a selling expense, so it goes with the expenses.
- Returns are never expenses. Sales returns come off sales, and purchases returns come off purchases.
It lands in your notebook with its questions as flashcards.
The statement of profit or loss: 6 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
How is gross profit calculated?
It is the profit on the goods before running costs.
Opening inventory $5000, purchases $30 000, closing inventory $4000. What is the cost of sales?
5000 + 30 000 − 4000.
Where is carriage inwards shown?
It is part of the cost of buying the goods.
Which of these is added to gross profit?
It is income. The others are expenses.
Revenue is $50 000 and cost of sales is $32 000. Expenses are $11 000. What is the profit for the year?
Gross profit is 18 000, less 11 000.
Which business does not prepare a trading section?
A service business has no goods to trade in.
Quiz
6 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 7 marks. Write your answers on paper, then check them.
The statement of profit or loss
Cambridge IGCSE Accounting 0452 · 7 marks · papermunch.org
Name ______________________________ Date ______________
Opening inventory is $6000, purchases are $40 000, purchases returns are $1500 and closing inventory is $7500. Calculate the cost of sales.[3]
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$37 000. 6000 + (40 000 − 1500) − 7500.
State where carriage inwards and carriage outwards are each shown in the statement of profit or loss.[2]
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Carriage inwards is added to purchases in the cost of sales. Carriage outwards is shown as an expense.
Gross profit is $28 000, rent received is $2000 and expenses are $19 400. Calculate the profit for the year.[2]
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$10 600. 28 000 + 2000 − 19 400.
Answers: The statement of profit or loss
- 1. $37 000. 6000 + (40 000 − 1500) − 7500.
- 2. Carriage inwards is added to purchases in the cost of sales. Carriage outwards is shown as an expense.
- 3. $10 600. 28 000 + 2000 − 19 400.