IGCSE Business: Profit and loss and Statement of financial position (Cambridge 0264) – Revision Notes

These notes condense sections 5.3 (Profit and loss) and 5.4 (Statement of financial position) of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029. Read the study guide first for full explanations, then try the practice questions. The course hub, the printable checklist and the free diagnostics help you find weak spots. Both papers are based on all the subject content. You will not be assessed on constructing these statements, only on reading, calculating from and using them. Money is in dollars and every business is invented.

5.3.1 Profit: definitions and importance

Term	Meaning
Revenue	Selling price per unit x number of units sold
Profit	Total revenue - total costs (also gross profit - expenses)
Loss	Total costs are greater than revenue, so profit is negative
Private sector business	A business owned by individuals or groups, not by the government
Retained profit	Profit kept in the business rather than paid out

Why profit matters to private sector businesses

Reason	One-line explanation
Reward for risk-taking	Pays owners for putting money in with no guarantee of return
Source of finance	Retained profit pays for assets or stock without interest
Measure of success	Shows whether income is beating costs, and allows year-to-year comparison
Attract investors	Higher or rising profit makes people more willing to invest

Use the exact reason, then link it to the business in the question. Profit is not the same as cash in the bank.

5.3.2 Statement of profit or loss

Line	Standard working
Revenue	Price x units sold
less Cost of sales	Cost of the goods sold
= Gross profit	Revenue - cost of sales
less Expenses	Wages, rent, advertising, utilities and so on
= Profit	Gross profit - expenses

Two rearrangements are useful when a figure is missing.

• Gross profit = profit + expenses.
• Cost of sales = revenue - gross profit.

Method in steps

1. Find revenue (multiply price by units if it is not given).
2. Subtract cost of sales to get gross profit.
3. Add up the expenses.
4. Subtract expenses from gross profit to get profit.
5. Comment: compare with another year or target, name the line that moved most and give an action.

Quick reminder

Marchbanks Candles sold 7,000 candles at 8 each, with cost of sales of 21,000 and expenses of 27,500.

• Revenue = 7,000 x 8 = 56,000.
• Gross profit = 56,000 - 21,000 = 35,000.
• Profit = 35,000 - 27,500 = 7,500.

Worked decision: profit statement

The next year Marchbanks Candles sold 9,000 candles at 8 each. Cost of sales was 30,600 and expenses 33,000. Revenue is 72,000, gross profit 41,400 and profit 8,400.

Revenue rose by 16,000, but cost of sales rose by 9,600 and expenses by 5,500, so profit improved by only 900. A good answer says that most of the extra revenue was absorbed by higher costs, then suggests checking whether the price or the supplier cost can be changed.

Decisions from a statement of profit or loss

What you see	What it may mean	Possible response
Revenue up, profit down	Costs rose faster than revenue	Review cost of sales and expenses line by line
Low gross profit	Price too low, or cost of sales too high	Raise price, change supplier, cut waste
Good gross profit, low profit	Expenses too high	Cut or review expenses
Profit rising steadily	Business is succeeding	Keep reinvesting, expand, attract investors
Loss	Costs exceed revenue	Cut costs, raise revenue, seek finance to survive

5.4.1 Statement of financial position

A snapshot of what the business owns and owes on one date.

Element	Meaning	Syllabus examples
Non-current assets	Owned, kept for more than a year	Property (land and buildings), machinery
Current assets	Cash or expected to become cash within a year	Inventory, trade receivables, cash
Non-current liabilities	Owed, due after more than a year	Bank loans
Current liabilities	Owed, due within a year	Trade payables, overdraft

Formulae

Measure	Form	Note
Total assets	Non-current assets + current assets	Standard form
Total liabilities	Current liabilities + non-current liabilities	Standard form
Working capital	Current assets - current liabilities	In the syllabus formulae
Capital employed	Total assets - current liabilities	Standard form. The syllabus names the concept but does not print a formula

Capital employed also equals non-current liabilities plus the owners’ funds (equity). Equity is the standard name for what total assets less total liabilities leaves.

Must-know distinctions

Pair	Difference
Trade receivables and trade payables	Receivables are owed to the business by customers. Payables are owed by the business to suppliers
Inventory and non-current assets	Inventory is held to sell soon. Non-current assets are kept to use over many years
Overdraft and bank loan	An overdraft is a current liability. A bank loan repayable after more than a year is a non-current liability
Profit and working capital	Profit is a result for a period. Working capital is a position on one date
Total liabilities and current liabilities	Working capital uses current liabilities only

Quick reminder

Ellerslie Joinery has property 64,000 and machinery 16,000. It holds inventory 9,000, trade receivables 5,000 and cash 2,000. It owes trade payables 6,000, an overdraft of 3,000 and a bank loan of 30,000.

• Total assets = 80,000 + 16,000 = 96,000.
• Current liabilities = 6,000 + 3,000 = 9,000. Total liabilities = 9,000 + 30,000 = 39,000.
• Working capital = 16,000 - 9,000 = 7,000.
• Capital employed = 96,000 - 9,000 = 87,000.

Decisions from a statement of financial position

• Positive working capital suggests the business can meet bills due within a year. Negative working capital is a warning.
• Compare current assets with current liabilities, and look at how much is owed overall.
• Check how new assets were paid for. Using an overdraft for a long-term asset weakens working capital.
• Lenders and suppliers use the same figures to judge risk.
• Possible actions: collect money owed sooner, reduce inventory, replace an overdraft with a long-term loan, delay buying assets.

Worked decision: financial position

Ellerslie Joinery then buys machinery for 12,000 and pays by raising its overdraft from 3,000 to 15,000. Non-current assets become 92,000 and current liabilities 21,000, with current assets unchanged at 16,000.

• Working capital = 16,000 - 21,000 = -5,000. It was positive 7,000 before.
• Capital employed = 108,000 - 21,000 = 87,000, which is unchanged.

The business has gained a machine but has less short-term safety. Replacing the overdraft with a longer-term loan would move the debt out of current liabilities.

Quick self-test

1. State the syllabus formula for profit using total revenue.
2. Name the four reasons the syllabus gives for why profit matters to private sector businesses.
3. A shop sold 320 items at 45 each. Calculate its revenue.
4. A business has revenue of 50,000 and cost of sales of 31,000. Calculate gross profit.
5. Gross profit is 19,000 and expenses are 12,500. Calculate profit.
6. Classify each as non-current asset, current asset, non-current liability or current liability: machinery, inventory, trade payables, a five-year bank loan.
7. Current assets are 42,000 and current liabilities are 30,000. Calculate working capital.
8. Non-current assets are 95,000, inventory is 12,000 and cash is 8,000, with no other assets. Calculate total assets.
9. Total assets are 90,000 and current liabilities are 25,000. Calculate capital employed using the standard form.
10. Revenue is 70,000 and gross profit is 26,000. Calculate cost of sales.

Answers

1. Profit = total revenue - total costs (or gross profit - expenses).
2. Reward for risk-taking, source of finance, measure of success, attract investors.
3. 320 x 45 = 14,400.
4. 50,000 - 31,000 = 19,000.
5. 19,000 - 12,500 = 6,500.
6. Machinery: non-current asset. Inventory: current asset. Trade payables: current liability. Five-year bank loan: non-current liability.
7. 42,000 - 30,000 = 12,000.
8. Total assets = 95,000 + 12,000 + 8,000 = 115,000.
9. 90,000 - 25,000 = 65,000.
10. 70,000 - 26,000 = 44,000.

Where marks are usually lost

• Giving gross profit when the question asks for profit, or the other way round.
• Writing a formula or number with no units or label. Add the dollar sign or the word “units” as needed.
• Putting an overdraft among non-current liabilities, or inventory among non-current assets.
• Using total liabilities instead of current liabilities when finding working capital.
• Listing the four reasons for profit with no link to the business in the question.
• Describing a figure without a conclusion. In a decision question, say what it means for the business and what to do.
• Treating a rise in revenue as proof of success without checking costs.
• Saying a business with profit has plenty of cash. They are different things.
• Giving only advantages in an evaluate or justify question. Weigh both sides, then decide.

Frequently asked questions

What is the difference between gross profit and profit? Gross profit is revenue minus cost of sales. Profit is gross profit minus expenses, which is the same as total revenue minus total costs, so giving gross profit when profit is asked for loses marks.

How do you calculate working capital for Cambridge IGCSE Business 0264? Working capital = current assets − current liabilities. Use current liabilities only, not total liabilities, and a negative answer means the business may struggle to pay what it owes within the year.

Is an overdraft a current or non-current liability? An overdraft is a current liability in the 0264 syllabus list, along with trade payables. Bank loans are non-current liabilities.

Is profit the same as cash? No. A business can record a profit and still run short of cash, for example when customers have not yet paid, so a profitable business can still have negative working capital.

Official syllabus

These notes follow the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029, published by Cambridge University Press and Assessment. Sections 5.3 and 5.4 sit under “Financial information and decisions”.