Income statement & comprehensive income

01

Read the story in stages

Revenue is income from ordinary trading activities. Cost of sales is the cost of goods or services sold. Revenue less cost of sales gives gross profit. Deduct operating expenses to reach operating profit, then account for finance costs, other relevant items and tax to reach profit for the period. A healthy sales figure can hide a weak margin; profit is not the same as available cash.

02

Step 1 · Establish genuine sales

Start from invoices and other sales records. Deduct returns and discounts. Review the reporting cut-off: goods ordered but not supplied are not automatically completed sales. Separate loan receipts, owner capital and customer advances from revenue. Where VAT applies, distinguish amounts collected for the tax authority from the business’s revenue, using the appropriate treatment.

03

Step 2 · Work out cost of sales

For a simple retailer, opening inventory plus purchases and appropriate directly attributable costs less closing inventory gives cost of sales. Use a physical count and investigate missing, damaged or obsolete goods. A service business may instead track direct labour, subcontractors and job materials. Do not deduct the same wages in both direct costs and operating expenses.

04

Step 3 · Record operating expenses

Group costs consistently: premises, staff, transport, utilities, marketing, professional fees and other operating costs. Include expenses incurred but not yet paid. Allocate prepaid expenses to the periods they benefit. Depreciation spreads an asset’s depreciable amount over its useful life; buying a durable machine is not automatically one month’s operating expense.

05

Step 4 · Separate financing and tax

Loan principal repayment reduces a liability; it is not an income-statement expense. Interest is a financing cost under the simplified example. Determine actual current and deferred tax where required with professional support. The workbook uses an illustrative tax expense of 1,500 and cash tax paid of 1,200; neither is a Zimbabwe tax rate or a calculation of a real tax liability.

06

Worked example · Gweru Trading

Fictional first-year sales are 60,000. Purchases are 38,000 and closing stock is 8,000, so cost of sales is 30,000 and gross profit is 30,000. Operating expenses excluding depreciation are 18,000; depreciation is 2,000. Operating profit is 10,000. After interest of 1,000 and illustrative tax of 1,500, profit is 7,500. Gross margin is 50%; net margin is 12.5%. These are teaching figures, not industry benchmarks.

07

What comprehensive income adds

Some recognised gains and losses are reported outside profit or loss as other comprehensive income under the applicable framework. The exact categories and treatment depend on the transactions and standard. Our simple example assumes none, so total comprehensive income equals profit of 7,500. Do not place an unexplained balancing figure in other comprehensive income.

08

Use the result

Compare like-for-like periods and explain changes in volume, prices, product mix and costs. If gross profit falls while sales rise, check discounts, purchasing costs and losses. If operating profit is strong but bank cash is low, investigate customer collections, inventory, capital spending and debt repayments. Review both cash and profit before expanding.

The statement at a glance

Gweru Trading · fictional first-year sole trader. Year ended 31 December 2026. All amounts in USD; parentheses indicate deductions or cash outflows.

Read the assumptions and explanations above. This simplified example omits items that may be necessary for your business.