Shadowing Practice: The INCOME STATEMENT Explained (Profit & Loss / P&L) - Learn English Speaking with Video
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In this video you'll learn what an income statement is.
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I'll show you what it looks like and how you can use it to measure a business's financial performance.
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Hey there, welcome back to Accounting Stuff.
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I'm James and in today's video we're going to cover the income statement.
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Also known as the profit and loss statement or the P&L for short.
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This is one of the three major financial statements in accounting along with the balance sheet and the cash flow statement.
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Collectively these reports give us an impression of a business's financial health so it's important that we understand how they work.
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I've already made videos covering the balance sheet and the cash flow statement
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which you can find linked up here and down below in the description
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but up until now I haven't posted a video yet on the income statement
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and I've received a lot of requests from you guys to cover this topic
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so thanks for all these particularly from one subscriber so Niloy
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if you're watching this video goes out to you good luck in your exam hope you crush it.
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An income statement is the summary of a business's revenues and expenses over a period of time.
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In its basic form an income statement looks like this it's a summary of a business's revenues
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and expenses over a period of time.
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When we take our total revenue and and subtract our expenses from it then we work out our profit or our loss.
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We make a profit when our revenues exceed our expenses
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and on the flip side we make a loss when our expenses are more than the income we've earned.
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This is why the income statement is also known as the profit and loss statement or the P&L for short.
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It lays out a roadmap for how we ended up here at the bottom line our profit or loss.
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The income statement always covers a period of time
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which could be anything that we want it to be but typically we run it for a month, a quarter or a full year.
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Here's a helpful analogy that I read in this book The Accounting Game which I recommend reading if you're new to accounting.
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You can find my review of it up here.
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Anyway back to it.
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If a balance sheet shows us a snapshot of a business's assets, liabilities and equity at a single point in time,
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then you can think of it as a photograph or a still frame taken from a video.
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Whereas the income statement covers a period of time.
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It's like watching a clip of that video.
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It has a beginning and it has an end.
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And if we look at it carefully and analyze it, then it can tell us a story.
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But more on that later.
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Let's take a closer look at our income statement.
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Revenues, less expenses, make us a profit or a loss.
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The problem with this layout is that it doesn't give us much detail.
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It would be much better if we made things a little more descriptive.
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For instance, revenue.
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There are many different types of revenue.
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If we were running a business that sells physical products then we might want to call this product sales instead.
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Or if we provide services we could call this our services rendered.
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This extra detail helps the readers of the income statement better understand what they're looking at.
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Clarity is the aim of the game here.
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The same goes for expenses.
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Businesses typically incur many different types of expense but broadly speaking these can be broken down into two categories.
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Our direct costs of doing business and our indirect costs of running the business.
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Our direct costs of doing business are the costs
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which we can directly trace through to the products we've sold or the services that we've provided.
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For a business that provides services we might call this our cost of services
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and if we sell physical goods then we could call this our cost of sales or our cost of goods sold.
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Direct costs like these are variable costs which increase in direct proportion to the sales that we've made.
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If you are running a retail
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or a wholesale business then these would include things like the original purchase price of the product
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that you're reselling or
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if you've run a manufacturing business then this would include the cost of your raw materials
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or the direct labor cost that went into producing your product.
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As we make more sales we incur more of these direct costs.
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Cost of goods sold can be a bit of a tricky concept to understand at first.
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It ties in very closely with inventory in the balance sheet.
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If you'd like to see me make a video explaining how all of
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that works then let me know down below in the comments
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and if you haven't already remember to hit that subscribe button
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so you don't miss out on all of the other accounting tutorials that we have coming out very soon.
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Back to the income statement.
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When we take our revenue and deduct our direct costs of doing business we get to our gross profit.
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If you're new to accounting then you'll soon discover that we have many different types of profit.
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Our gross profit is a really useful tool that allows us to measure the efficiency of our production and sales process.
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I'll show you how that works in a minute.
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But first let's jump back to indirect costs.
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These are the costs of running a business
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which can't directly be traced back to the production of goods or the provision of services.
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We sometimes call these overheads.
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Overheads can include fixed costs like rent, employee salaries, insurance costs, admin expenses,
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legal costs, accounting costs, marketing costs, depreciation and amortization.
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Whoa, there's a lot of them.
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Fixed costs like these tend to remain the same.
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They bear no correlation at all to the sales that your business has made.
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However, not all overheads are fixed.
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Variable overheads can loosely correlate with a business's sales, although they can't be directly traced back to the production of goods or the provision of services.
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These include things like advertising costs, which can indirectly drive sales and sales commissions.
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Utility costs could also be considered a variable overhead in a manufacturing business because these can increase as we ramp up production.
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When we deduct our indirect costs of doing business from our gross profit, we come to our operating profit.
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Operating profit measures the net income that we generated from operations.
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This is the residual amount that's left over after deducting all of our direct and indirect costs of doing business.
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So this is our basic income statement.
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But how does it help us measure a business's financial health?
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It does that by giving us a means to compare our financial performance against comparative accounting periods.
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A comparative period is a different period of time.
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It can be whatever we want it to be.
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We could compare a current month income statement against last month's income statement or this year versus last year.
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When we use comparative periods we can calculate the change
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or movement across each line item down the profit and loss statement
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and as accountants it's our job to support these movements with a narrative which explains all of the differences.
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Let's throw in some numbers into an imaginary company and I'll show you what I mean.
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We'll compare the movements in our P&L year on year.
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This is going to be for a medium-sized business so we can quote our numbers in thousands of dollars.
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What have we got here?
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Our imaginary company has made sales of $110,000 which is up $10,000 from what we made in the prior year.
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Our cost of goods sold have also increased by $10,000 from $30,000 to $40,000.
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That's left us with a gross profit of $70,000 which has remained unchanged.
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Our overheads are fixed at $45,000 which gives us an operating profit of $25,000 in each period.
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What can we learn from all of this?
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Well our sales have increased by $10,000 but our gross profit has remained exactly the same.
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How can that be?
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A useful metric that we can use to analyze this is gross profit margin.
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We can calculate our gross profit margin by taking our total product sales
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and deducting our costs of goods sold and then dividing the whole lot by our product sales.
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This measures how efficiently we've been producing and selling our imaginary product.
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In this case our gross profit margin in the current year is around 64%
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which is actually down from last year's gross profit margin of 70%.
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How's that possible?
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Well one of two things could be happening here.
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Our sales could be shrinking or our costs could be rising.
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We could be selling more products but at a discount or the cost of our raw materials could be rising.
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These are the questions that we need to be asking ourselves as accountants, investors or small business owners.
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We can compare metrics like the gross profit margin across comparative
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periods to help us identify what questions we should be asking and then Then, that's when the work begins.
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We need to find out the answers and use them to build a narrative that explains what's going on.
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Gross profit margin is just one of many business metrics that we can use to analyse the income statement.
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If you'd like to see me make videos on the others, let me know.
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Now, this is still quite a basic income statement.
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In reality there are other indirect costs of doing business which we might need to include as well.
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Things like interest expenses and tax.
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These tend to slot in below operating profit because they aren't considered to fall within the normal cost of operations.
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This is why operating profit is also known as EBIT or earnings before interest and tax.
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When we deduct our interest
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and tax from our operating profit we calculate our net profit the bottom line
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because it's at the bottom of the profit and loss statement.
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So you can see that there are many different types of profit and loss to consider in accounting.
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We start off with our revenue and we deduct our direct costs of doing business to come to our gross profit, our top line profit.
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Below this we take out the indirect costs of running our business to find our operating profit, our EBIT, our earnings before interest and tax.
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And when we remove interest and tax we calculate our net profit, the bottom line.
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these different types of profit help us measure performance over a period of time.
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The main goal of most businesses is to maximize their profits
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so it's important to be clear on what that means and to be aware of the differences between gross profit,
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operating profit and net profit which can each tell us a different part of the story.
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Like I mentioned earlier the income statement is just one of
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the three main financial statements along with the balance sheet and the cash flow statement.
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I've made videos covering both of these already which you can find here and here.
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If you found this one useful give it a like or better yet share it with a friend, why not?
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Don't forget to subscribe for more accounting tutorials.
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I'll see you around.
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Vocabulario y notas de pronunciación para esta lección
Esta lección de conversación de nivel C1 se basa en el vídeo “The INCOME STATEMENT Explained”. Las palabras que más se repiten: profit, cost, statement, income, sales. Este vídeo tiene 142 frases y 1913 palabras para practicar shadowing. La parte hablada dura 11:20. El hablante habla a un ritmo natural de unas 169 palabras por minuto, cercano a una conversación cotidiana. El 86 % de las palabras está entre las 3.000 más comunes del inglés; conviene repasar el resto antes de empezar.
Vocabulario clave de este vídeo
Las 15 palabras más avanzadas del vídeo, con su pronunciación y significado:
| Palabra | Pronunciación | Significado |
|---|---|---|
| overhead sustantivo | /ˈəʊvəˌhɛd/ | gastos generales |
| indirect adjetivo | /ˌɪn.daɪˈɹɛkt/ | indirecto |
| comparative adjetivo | /kəmˈpæɹətɪv/ | comparativo |
| calculate verbo | /ˈkælkjʊleɪt/ | calcular |
| imaginary adjetivo | /ɪˈmæd͡ʒɪˌn(ɛ)ɹi/ | imaginario |
| metric adjetivo | /ˈmɛt.ɹɪk/ | métrico |
| incur verbo | /ɪnˈkɝ/ | incurrir en, incidir en |
| accountant sustantivo | /əˈkaʊn.tənt/ | contador, contadora |
| tutorial sustantivo | /ˌtjuːˈtɔːɹɪəl/ | tutoría, tutorial |
| analyze verbo | /ˈæn.əˌlaɪz/ | analizar |
| subscribe verbo | /səbˈskɹaɪb/ | suscribirse, subscribirse |
| amortization sustantivo | /ˌæmɚtəˈzeɪʃən/ | amortización |
| correlate verbo | /ˈkɔɹəleɪt/ | correlacionar |
| resell verbo | /ɹiːˈsɛl/ | revender |
| snapshot sustantivo | /ˈsnæpʃɒt/ | instantánea |
Phrasal verbs que vas a escuchar
| Palabra | Pronunciación | Significado |
|---|---|---|
| come out verbo | /ˌkʌm ˈaʊt/ | revelarse, salir a la luz |
| end up verbo | terminar, ir a parar | |
| find out verbo | averiguar, anoticiarse | |
| lay out verbo | /ˌleɪ ˈaʊt/ | encaminar |
| take out verbo | sacar |
Frases que vale la pena repetir
Frases cortas y completas del vídeo que puedes reutilizar en la conversación diaria:
- Let's take a closer look at our income statement.
- I'll show you how that works in a minute.
- What have we got here?
- What can we learn from all of this?
Gramática en este vídeo
Las estructuras que más usa el hablante, con las palabras exactas del vídeo:
| Estructura | En el vídeo |
|---|---|
| Oraciones condicionales if + oración, will/would + verbo — una condición y su resultado | If you're new to accounting then you'll soon |
| Present perfect have/has + participio pasado — una acción pasada que sigue importando ahora | I've already made · haven't posted · I've received |
| Voz pasiva be + participio pasado — importa lo que ocurre, no quién lo hace | is also known · can be broken · be traced |
| Oraciones de relativo who / which + oración — información extra sobre una persona o cosa | costs, which can · profit which can |
Pronunciación a tener en cuenta
El hablante usa 33 contracciones y formas reducidas, como we've, I'll, you're. Dilas en su forma corta, tal como las oyes.
- Los sonidos de “sh” y “zh”: amortization /ˌæmɚtəˈzeɪʃən/, depreciation /dɪˌpɹiːʃɪˈeɪʃən/, snapshot /ˈsnæpʃɒt/, correlation /ˌkɔɹ.əˈleɪ.ʃən/
- Palabras largas — cuida el acento: comparative /kəmˈpæɹətɪv/, imaginary /ɪˈmæd͡ʒɪˌn(ɛ)ɹi/, amortization /ˌæmɚtəˈzeɪʃən/, depreciation /dɪˌpɹiːʃɪˈeɪʃən/, residual /ɹɪˈzɪd͡ʒ.u.əl/
Sonidos difíciles para hispanohablantes:
- s + consonante al inicio — sin añadir una “e” delante: snapshot /ˈsnæpʃɒt/, slot /slɑt/
- /v/ — no es /b/: los dientes tocan el labio inferior: overhead /ˈəʊvəˌhɛd/, comparative /kəmˈpæɹətɪv/, descriptive /dəˈskɹɪptɪv/, investor /ɪnˈvɛs.tə(ɹ)/
- /z/ — sonora, no /s/: analyze /ˈæn.əˌlaɪz/, amortization /ˌæmɚtəˈzeɪʃən/, residual /ɹɪˈzɪd͡ʒ.u.əl/, maximize /ˈmæksəmaɪz/
Cómo practicar con este vídeo
- Escucha el vídeo entero una vez sin hablar y anota las palabras que no conoces.
- Empieza a velocidad 0,75×, haz shadowing frase por frase y vuelve a la velocidad normal cuando te resulte fácil.
- Grábate y compara con el original, prestando atención a palabras como overhead, indirect, comparative.
¿Qué es la Técnica de Shadowing?
Shadowing es una técnica de aprendizaje de idiomas respaldada por la ciencia, desarrollada originalmente para la formación de intérpretes profesionales y popularizada por el políglota Dr. Alexander Arguelles. El método es simple pero poderoso: escuchas audio en inglés nativo y lo repites en voz alta de inmediato, como una sombra que sigue al hablante con solo 1-2 segundos de retraso. A diferencia de la escucha pasiva o los ejercicios de gramática, el shadowing obliga a tu cerebro y músculos de la boca a procesar y reproducir simultáneamente patrones de habla reales. Las investigaciones muestran que mejora significativamente la precisión de la pronunciación, la entonación, el ritmo, el habla conectada, la comprensión auditiva y la fluidez al hablar, convirtiéndola en una de las metodologías más efectivas para la preparación del IELTS Speaking y la comunicación en inglés en el mundo real.