Prepare a budgeted statement of profit or loss
Convert budgeted activity into expected revenue, cost of sales, expenses and profit for the period.
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. Topic 4.3 covers budgetary control, linked master-budget schedules, spreadsheets, limiting factors, flexible budgets, reconciliations, behavioural effects and supported decisions. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use AS Topics 2.1–2.2 for cost behaviour, contribution and budgeting foundations. For each schedule, label the period, units, price, inventory policy, timing assumptions and opening balance before calculating.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Revenue $90,000 and cost of sales $58,000. What is gross profit?
What you will learn
- Calculate budgeted sales revenue and cost of sales
- Prepare a structured profit statement
- Distinguish profit from cash
Use accrual amounts for the period
A budgeted statement of profit or loss estimates performance over a period. It usually shows sales revenue, cost of sales, gross profit, operating expenses and profit for the year, using the format and categories supplied.
Budgeted revenue comes from the sales schedule. Cost of sales may use opening inventory + purchases or production cost − closing inventory, depending on the business and question. Match inventory and expense assumptions to the same period.
Profit is not a cash forecast
A credit sale can increase revenue before the customer pays. A credit purchase or accrued expense may affect profit before cash is paid. Depreciation reduces accounting profit but is not a current-period cash payment.
Check that a statement uses expenses incurred for the period rather than cash payments. Use the separate cash budget for receipts and payments, and a statement of financial position for balances at a date.
Pause and explain
Gross profit is $24,000 and operating expenses $19,500. What is profit before any other stated items?
Worked example
Revenue is budgeted at $120,000, cost of sales at $72,000 and operating expenses at $31,000. Calculate gross profit and profit for the year.
Show the worked solution
- Gross profit = revenue − cost of sales = 120,000 − 72,000.
- Gross profit = $48,000.
- Profit = gross profit − operating expenses = 48,000 − 31,000 = $17,000.
Answer Gross profit is $48,000 and profit for the year is $17,000.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Sales revenue $210,000; cost of sales $126,000; operating expenses $57,000; finance cost $4,000. Calculate profit for the year.
Give me a hint
Deduct cost of sales, then the listed operating and finance costs.
Compare my reasoning
- Gross profit = 210,000 − 126,000 = $84,000.
- Profit before finance = 84,000 − 57,000 = $27,000.
- Profit for year = 27,000 − 4,000 = $23,000.
Profit for the year is $23,000.
Look for these in your work
- Gross profit correct
- Operating expense deducted
- Finance cost deducted
A retailer expects revenue $160,000, opening inventory $18,000, purchases $92,000, closing inventory $21,000, wages $26,000 and rent $9,000. Calculate cost of sales, gross profit and profit before any tax or finance item.
Give me a hint
Find cost of sales from opening inventory plus purchases less closing inventory.
Compare my reasoning
- Cost of sales = 18,000 + 92,000 − 21,000 = $89,000.
- Gross profit = 160,000 − 89,000 = $71,000.
- Operating expenses = 26,000 + 9,000 = $35,000; profit = $36,000.
Cost of sales is $89,000, gross profit is $71,000 and profit before tax/finance is $36,000.
Look for these in your work
- Inventory formula correct
- Gross profit correct
- Operating costs deducted
A manager proposes rejecting a profitable credit order because it will not be paid until next month. Which budgets should be checked?
Give me a hint
A credit sale can improve profit while changing cash timing and receivables.
Compare my reasoning
- Check the sales and profit effect, including any incremental cost and capacity use.
- Check the receivables schedule and cash budget for the delayed collection.
- Assess credit risk, working capital and whether financing is available before deciding.
Use profit, receivables and cash budgets together; then consider credit risk and capacity. A profitable sale may still create a short-term cash pressure.
Look for these in your work
- Profit effect reviewed
- Cash timing reviewed
- Risk and capacity included
Common mistakes
- Subtracting cash payments instead of expenses incurred
- Including equipment purchases as an expense in full without the stated accounting treatment
- Calling profit the closing bank balance
What can you explain now?
A budgeted statement of profit or loss mainly reports…
Compare with the explanation
Revenue and expenses for a period
Profit or loss measures period performance; the balance sheet is a point-in-time position.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Name one item affecting profit before cash and one non-cash expense that can reduce profit.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.