2.7 Flashcards
Opening inventory
VALUE of the firms stock at the beginning of the financial year
Define Purchases
The value of materials that the business bought during the year
Closing inventory
VALUE of the firms stock at the end of the financial year
What is Sales Revenue
Total income from selling goods during the financial year
Formula for Cost of Goods sold/sales
Opening Inventory + Purchases- Closing Inventory
What is Gross Profit
Difference between the income from sales and the cost to the firm of those goods sold
What is Net profit
Calculated by taking all other expenses away from the gross profit figure
Gross profit formula
Sales - Cost of goods
Net Profit Formula
Gross Profit - Expenses
Key parts of income statement
Opening Inventory
Closing Inventory
Net profit
Cost of Goods
Gross profit
What does statement of financial position show
shows the accurate value of a business on any given date
What should be equal is statement of financial position is correct
Total Assets = Total Equity and Liabilities
Importance of Income Statement
Allows Shareholders to see how business has performed and whether it has made an acceptable profit
Enable comparison with competitors
Allows finance providers to see whether business is able to generate profits to pay back
What does income statement show
Income statement show how much a business has earned through trading
Importance of Statement of Financial Position
Shows the accurate value of business on any given date
Show to banks and investors
Can compare figures from previous years
Shows total assests and liabilities
