A month's income statement
Sales are at the top. Subtracting the cost of what was sold leaves gross profit, and subtracting the running expenses leaves the profit. In this example the restaurant made $7,000.00, 21.9% of what it sold.
| Item | Amount |
|---|---|
| Sales | $32,000.00 |
| Cost of sales | −$9,800.00 |
| Gross profit | $22,200.00 |
| Wages | −$9,600.00 |
| Rent | −$3,000.00 |
| Utilities | −$1,400.00 |
| Other expenses | −$1,200.00 |
| Profit for the month | $7,000.00 |
The balance sheet
Assets are what you have: money in cash and in the bank, and stock. Liabilities are what you owe: suppliers, wages or taxes payable. The difference is equity, what really belongs to the owner.
| Item | Amount |
|---|---|
| Cash and bank | $6,500.00 |
| Stock | $3,700.00 |
| Total assets | $10,200.00 |
| Owed to suppliers | −$2,800.00 |
| Equity | $7,400.00 |
Why making a profit is not the same as having cash
You can show a profit and have little cash: because you bought stock for several weeks, paid an old debt or took money out. That is why you look at both: the income statement says whether the business works, and the balance sheet where the money is.