Class 11 Entrepreneurship Notes · CBSE

Income Statement

Income Statement — learn to prepare a profit and loss statement by computing sales revenue, cost of goods sold, gross profit, and profit before tax. CBSE Class 11 Entrepreneurship notes with Suman's bed sheets and the Savitha Sari Shop exercise.

Last updated: 10 Sep 2026

Notes

Profit Formula

PROFIT

Profit = Total Sales Revenue − Total Sales Expenses

The income statement (profit and loss statement) is built on this single equation

Suman's Bed Sheets — Two Scenarios

Suman buys 25 bed sheets at ₹ 100 each and sells them at ₹ 200 each, spending ₹ 500 on advertisement. The two scenarios below show what changes — and what does not — when fewer sheets are sold.

Solved Example

Problem

Scenario 1 — Suman sells all 25 bed sheets.

Solution

Profit Before Tax = ₹ 2,000

Solved Example

Problem

Scenario 2 — Suman sells only 20 of the 25 bed sheets.

Solution

Profit Before Tax = ₹ 1,500

Both scenarios side by side — the same income statement layout, two different sales quantities.
	Ex1 Qty	Ex1 Rate	Ex1 Total	Ex2 Qty	Ex2 Rate	Ex2 Total
Sales (A)	25	200	5,000	20	200	4,000
COGS — Variable Cost (B)	25	100	2,500	20	100	2,000
Gross Profit (C = A − B)		100	2,500		100	2,000
Fixed Cost (D)			500			500
Profit Before Tax (E = C − D)			2,000			1,500

Why Scenario 2 earns less

Gross profit per unit is the same in both scenarios (₹ 100 per sheet). But selling fewer units reduces total profit, because fixed costs (advertisement ₹ 500) stay constant regardless of units sold.So what? — A bakery has the same margin per cake, but on a slow day the oven, the shop rent and the baker's wages still cost exactly the same. Fewer cakes, same fixed bill.

Savitha Sari Shop — Income Statement Exercise

Given data

Selling price ₹ 250/sari; purchase price ₹ 125/sari; packing ₹ 12.50/sari; freight ₹ 12.50/sari.Sales commission 10% on sales; salaries: 2 staff @ ₹ 1,000 + Savitha ₹ 1,000 = ₹ 3,000/month.Rent ₹ 1,500/month; utilities ₹ 500; phone ₹ 500; office expenses ₹ 1,000.Interest: bank loan ₹ 1,00,000 @ 12% p.a. → ₹ 1,000/month (interest-only for the first 12 months).Furniture/painting/lighting ₹ 90,000 — depreciated over 5 years. Credit sales money is received the following month.Quick workings: interest = 1,00,000 × 12% ÷ 12 = ₹ 1,000/month; depreciation = 90,000 ÷ 5 years ÷ 12 = ₹ 1,500/month.

Projected sales for the first 6 months.
	M1	M2	M3	M4	M5	M6
Total saris sold	72	84	100	120	152	192
Cash sale qty	60	68	80	100	128	160
Credit sale qty	12	16	20	20	24	32
Cash sale rupees	15,000	17,000	20,000	25,000	32,000	40,000
Credit sale rupees	3,000	4,000	5,000	5,000	6,000	8,000

Template to fill — follow the Suman pattern: Total Sales (A) − Total COG (B) = Gross Profit (C); C − Total Fixed (D) = Profit Before Tax (E).
Savitha Sari Shop — Income Statement	Mth 1	Mth 2	Mth 3	Mth 4	Mth 5	Mth 6	Total
Sales revenue
Cash sale
Credit sale
Total sales (A)
COGS (Cost of Goods Sold)
Raw material
Packing material
Sales commission
Freight
Total COG (B)
Gross profit (C = A − B)
Fixed expenses
Salary
Rent
Utilities
Interest
Phone
Office expenses
Depreciation
Total fixed (D)
Profit/(loss) before tax (E = C − D)
Cumulative profit/(loss)

Not a cash statement

The income statement is the same as the profit and loss statement — and it does NOT show cash transactions or cash flow. Credit sales count as revenue this month even though the money arrives next month. That is why the income statement and the cash flow projection can tell different stories for the same shop.

Key Takeaways

Profit = Total Sales Revenue − Total Sales Expenses — the single equation behind every income statement.
Gross Profit = Sales − COGS (variable cost); Profit Before Tax = Gross Profit − Fixed Costs.
Only the units actually sold are COGS — unsold stock stays in inventory (20 of 25 sheets → COGS for 20).
Fixed costs stay constant with units sold: Suman’s ₹ 500 advertisement is the same at 20 or 25 sheets.
The income statement is not a cash statement — credit sales count as revenue now, cash arrives later.
So what? — Every salary-slip you will ever get works the same way: gross pay, then deductions, then the final number you actually take home.