5.3 Income Statements Flashcards
What are accounts?
Financial records of a firm’s transactions.
What are Final Accounts?
Prepared at the end of the financial year, detailing profit or loss and the worth of the business.
How is profit calculated?
Profit = Sales Revenue – Total cost.
What happens when total costs exceed sales revenue?
A loss is made.
How can a business increase profit?
By increasing sales revenue or cutting costs.
Why is profit important to a business? (List at least two reasons)
- It is a reward for enterprise.
- It is a reward for risk-taking.
- It is a source of finance.
- It is an indicator of success.
What is a primary objective for social enterprises?
Welfare of the society.
What is the difference between profit and cash flow?
Profit is the surplus after total costs are deducted from sales; cash flow only considers elements paid in cash immediately.
What is an income statement?
A financial document recording all income and costs incurred by the business over the financial year.
What is Gross Profit?
Gross Profit = Sales Revenue – Cost of Sales.
How is Net Profit calculated?
Net Profit = Gross Profit – Expenses.
What is Profit after Tax?
Profit after Tax = Net Profit – Tax.
What are dividends?
Share of profit given to shareholders; return on shares.
How is Retained Profit for the year calculated?
Retained Profit = Profit after Tax – Dividends.
What are the uses of an income statement for managers? (List at least two uses)
- Know the profit/loss made by the business.
- Compare performance with previous years and competitors.
- Know the profitability of individual products.
- Help decide what products to launch.
Fill in the blank: Gross Profit = Sales Revenue – _______.
Cost of Sales.
True or False: Profit is always the same as cash flow.
False.
