chapter 24 - income statement Flashcards
definition of:
accounts
financial records of a firm’s transaction and they should be kept up to date and with great accuracy
definition of:
accountants
professionally qualified people who have responsibility for keeping accurate accounts and for producing the final accounts
definition of:
financial statements
income statements, balance sheet, cash flow & statements of changes in equity are produced at the end of financial year and give details of the profit or loss made over the year and worth of business
why is profit important?
- source of finance
- reward for enterprise
- reward for risk taking
- indicator of success
trading section of income statement
sales revenue opening inventories add: purchases total inventory available less: closing inventory costs of good sold gross profit
definition of:
gross profit
made when sales revenue is greater than cost of good sold
why is trading section not a complete income statement?
- other costs running the business apart from variable labour and material costs
- taxes on profit
- dividends to shareholders
profit and loss section of income statement.
sales revenue less: cost of sales gross profit less: operating expenses net profit corporation tax profit after tax dividends retained profit for the year
definition of:
net profit
it’s calculated by deducting all expenses and overheads of business from gross profit
definition of:
depreciation
fall in the value of a fixed asset over time
what is retained profit for?
- increases internal finance for business
- used for expansion
- avoid long term loans which carry interest cost
- increase investment in r&d
- increase quality and quantity of f.o.p
use of income statement in decision making
- whether business is growing
- whether customers recognise business and its products
- survival of business
- whether business can expand
