Chapter-21 Flashcards
Income statement
What is gross profit?
It is the difference between revenue and cost of sales.
What is profit?
It is the difference between revenue and total costs.
What is total cost?
It is the sum of cost of sales and expenses.
What is revenue?
It is the amount earned from selling products.
What is cost of sales?
It is the cost of buying the goods used to make the products that are sold.
What are expenses in a business?
Day-to-day operating costs of running the business.
What are some differences between cash and profit?
i) Borrowed or invested money increases cash, not profit.
ii) Capital expenditure reduces cash, not profit.
iii) Credit sales increase profit immediately but cash only when payment is received.
What is an Income statement?
A financial statement that records a business’s revenue, costs, and profits over a specific period of time.
How do owners/shareholders use profit information?
i) To see how much they earned from their investment.
ii) To decide on reinvestment or selling shares.
How do shareholders use profit information?
i) To estimate dividend payments.
ii) To assess changes in share value based on profit levels.
How do employees use profit information?
i) To evaluate job security.
ii) To expect potential pay rises or bonuses through profit-sharing schemes.
How do lenders use profit information?
i) To check if the business can pay interest.
ii) To assess if the business can repay loans on time.
How does the government use profit information?
To calculate the amount of tax the business must pay.
How do suppliers use profit information?
To judge if the business can continue purchasing from them regularly.
How do managers use profit information?
i) To measure performance over time or against competitors.
ii) To make decisions on reinvesting retained profits.
