Chapter 24 - Income Statements

Question 1

Accounts

Answer 1

Financial records of a firm’s transactions

Question 2

Accountants

Answer 2

Professionally qualified people who have responsibility for keeping accurate accounts and producing the final accounts

Question 3

Final accounts

Answer 3

Produced at the end of the financial year and give details of the profit/loss made over the year and the worth of the business

Question 4

Why profit is important to private sector businesses (4)

Answer 4

Reward for enterprise
Reward for risk taking
Source of finance
Indicator of success

Question 5

Income statement
Alt. name

Answer 5

Financial statement that records all of the income of a business and all costs incurred to earn that income over a period of time.
Profit and loss account

Question 6

Revenue

Answer 6

Income a business gets during a period of time from the sale of goods/services

Question 7

What will managers ask themselves if the business is making a profit

Answer 7

Higher/lower than last year?
Lower - > why falling?
Compared to similar businesses?
Lower - > what can we do?

Question 8

What managers ask themselves if the business makes a loss

Answer 8

Short or long term problem?
Similar businesses also making losses?
What can we do to turn losses into profits?

Question 9

Trading account

Answer 9

Shows how the gross profit of a business is calculated

Question 10

Cost of sales

Answer 10

Cost of producing/buying in the goods actually sold by the business during a time period

Question 11

Gross profit

Answer 11

When revenue is greater than cost of sales (revenue - cost of sales) and does not make any allow for overhead costs/expenses

Question 12

Net profit

Answer 12

Profit made by a business after all costs have been deducted from revenue.
Gross profit - Overhead costs

Question 13

Depreciation

Answer 13

The fall in the value of a fixed asset over time