$1.6 million came in. What was left?: In 2025 the Mill Lane bakehouse baked about 1,200 loaves a night. Over the year, $1,600,000 came in.
The three shops sold the loaves with cakes and lunches, and the vans took wholesale orders to cafés and hotels.
Marco is pleased. Lena is not ready to celebrate yet. Before she knows how the year went, she needs to know what all of it cost.
What is left of the money coming in once every cost has been paid is profit.
Profit = total revenue − total cost
Total revenue is all the money from sales, price × quantity for each stream (3.3.2). Total cost is every cost of running the business for the year, fixed costs plus variable costs (3.3.1).
Lena's Bakery Ltd, 2025, in three lines
Total revenue: $1,600,000
Everything the shops and the wholesale orders took in during the year.
Total cost: $1,515,000
Fixed costs of $1,035,000 (wages, rent and utilities, and the rest) plus variable costs of $480,000 (the ingredients and packaging for everything that was sold).
Profit: $85,000
$1,600,000 − $1,515,000 = $85,000. That is what the year's trading left.
When the answer is below zero: If total cost is bigger than total revenue, the sum comes out negative. That is a loss.
Had the bakery's costs been $1,650,000, then $1,600,000 − $1,650,000 = −$50,000: a loss of $50,000. Accounts often write a loss in brackets, ($50,000), or with a minus sign.
| Total revenue | Total cost | Result |
|---|---|---|
| $1,600,000 | $1,515,000 | A profit of $85,000 |
| $1,600,000 | $1,650,000 | A loss of $50,000 (−$50,000) |
| $1,600,000 | $1,600,000 | No profit and no loss: $0 |
Two bills still come out of the $85,000: $10,000 of interest on the Mill Lane loan and $15,000 of tax. What is left, $60,000, belongs to the owners: $30,000 was paid to the shareholders as dividends and $30,000 was kept in the company (3.2.1).
Revenue alone says how busy the bakery was. Only profit says whether it paid.
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The costs come in pieces: Lena's accountant never writes one line called total cost. The costs arrive in pieces, each with its own name, and they are taken off one at a time.
The result at the end is the profit for the period: what is left for the owners after everything, tax included.
The pieces always come in the same order.
Sales revenue: all the money from sales. Cost of sales: what the goods that were sold cost to make, the flour, butter and packaging. Expenses: the cost of running the business, wages, rent, utilities and the rest. Interest: the cost of borrowing. Tax: what is paid on the profit.
Lena's Bakery Ltd, year ended 31 December 2025
Sales revenue: $1,600,000
Loaves, cakes, lunches and wholesale orders.
Minus cost of sales $480,000 = $1,120,000
What is left after paying for what went into the bread is the gross profit.
Minus expenses $1,035,000 = $85,000
Wages $750,000, rent and utilities $180,000, other $105,000. The $85,000 is the profit before interest and tax.
Minus interest $10,000 = $75,000
The interest on what is left of the Mill Lane loan.
Minus tax $15,000 = $60,000
The profit for the period. The $85,000 two steps back is the same figure as total revenue − total cost; interest and tax take it down to $60,000.
The sum in one line: Profit for the period = sales revenue − cost of sales − expenses − interest − tax
$1,600,000 − $480,000 − $1,035,000 − $10,000 − $15,000 = $60,000
Tables of figures often save space with a heading such as 'all figures in $000s'. Then the sum reads 1,600 − 480 − 1,035 − 10 − 15 = 60, and 60 means $60,000. Write the answer as $60,000 so that nobody has to guess.
| The bakery's figure | In the sum? | Why |
|---|---|---|
| Sales revenue, cost of sales, expenses, interest, tax | Yes | Money earned in the year and the costs of earning it |
| Cash $25,000 | No | Money the bakery holds on 31 December, not money it earned or spent in the year |
| Debtors $40,000 | No | Money cafés and hotels still owe it; the sales are already in sales revenue |
| Stock $15,000 | No | Flour and ingredients still on the shelf, not yet used |
| Bank loan $350,000 | No | Money borrowed and still owed. Only the interest on it is a cost |
| Share capital $200,000, retained earnings $150,000 | No | What the owners have put in and left in over the years |
| Dividends $30,000 | No | Paid out of the profit, after it has been worked out |
Two traps: Stopping early. Sales revenue minus cost of sales is only the gross profit. Keep going until interest and tax have been taken off.
Taking off the wrong things. Cash, debtors, stock, loans and share capital are things the business owns or owes. They sit in the same table, but they are not revenue or costs of the year.
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Goldcrust Express: In 2023 Goldcrust plc opened its first Goldcrust Express kiosks, selling coffee and pastries at railway stations. It opened more each year.
In 2024 a change in food-safety rules meant every kiosk had to be refitted, a one-off cost of $0.6m.
| Goldcrust Express | 2023 | 2024 | 2025 |
|---|---|---|---|
| Kiosks open | 40 | 60 | 80 |
| Sales revenue | $6.0m | $9.0m | $12.8m |
| Profit for the period | −$1.5m | −$0.4m | $1.1m |
| Total cost (revenue − profit) | $7.5m | $9.4m | $11.7m |
Three years of profit figures tell a story. Read it in three steps: which way it is going, by how much, and why.
The last row is the formula used backwards. If profit = revenue − cost, then cost = revenue − profit, and a loss adds to it: $6.0m + $1.5m = $7.5m. Revenue rose by $6.8m over the three years, cost by only $4.2m, so the losses closed.
From a description to a comment
Direction
The losses shrank as more kiosks opened, and in 2025 Goldcrust Express made its first profit.
Size, from the table
From a $1.5m loss to a $0.4m loss to a $1.1m profit, while sales revenue more than doubled from $6.0m to $12.8m.
Reason, from the text
Without the one-off $0.6m refit, 2024 would have been a profit of $0.2m ($0.6m − $0.4m). The kiosks were paying their way a year earlier than the table suggests.
Copying the numbers is not a comment: 'In 2023 the loss was $1.5m, in 2024 $0.4m and in 2025 the profit was $1.1m' repeats the table. It says nothing the reader cannot see.
A comment says what the numbers mean: the business is moving from loss to profit, and here is the figure or the fact that shows it.
How this comes up: Profit for the period comes up in two ways, for two marks each: a missing figure to calculate, or three years' results to comment on.
The two usual questions
- Calculate X. A table of selected figures for one year, some of them costs and revenue, others things the business owns or owes, with the profit for the period left as a missing X. Show all your working.
- Comment. A table of three years' results: comment on the profit for the period, using the figures and what the text says happened.
The two-mark calculation
- Write the sum in words. Sales revenue − cost of sales − expenses − interest − tax = profit for the period.
- Put the figures in, in the same order. Take only those five from the table.
- Give the answer with its unit. If the table is in $000s, 95 means $95,000: write $95,000.
Where the marks go
- No working, one mark at most. A correct answer on its own is not enough; the sum must be on the page.
- The right method still counts. A slip in the arithmetic with the right sum written out keeps one mark.
- Leave out what the business owns or owes. Cash, debtors, stock, loans and share capital are not in the sum.
Calculate Valley Grain's profit for the period, X, for the year ended 31 December 2025 (show all your working).
Model answer plan
See the answer broken into clear points, with guidance on how each point earns marks.