Chapter 29: Statement Of Comprehensive Income (Version) Flashcards
What is the purpose of the statement of comprehensive income?
To calculate the profit at the end of the financial year.
Statement of comprehensive income
Financial document showing a firm’s income and expenditure in a particular time period.
Profit
Money left over after all costs have been subtracted from revenue.
How long is a financial year?
A 12-month trading period.
What is gross profit?
Gross profit is revenue minus cost of sales.
What is operating profit?
Operating profit is gross profit minus expenses.
What are the two types of taxes businesses may pay?
Income tax for sole traders and partners and corporation tax for limited companies.
Retained profit
Profit held by a business rather than returning it to the owners & which may be used in the future.
Distributed profit
Profit that is returned to the owners of a business.
What was the previous name of the statement of comprehensive income?
Profit and loss account.
What does revenue represent in the statement of comprehensive income?
Money received from selling goods and services, excluding VAT.
What does the cost of sales include for manufacturers?
Raw materials, factory worker wages, and energy costs.
What does the cost of sales include for retailers?
The cost of buying inventory (stock) for resale.
What does the cost of sales include for service providers?
Costs associated with delivering the service, such as fuel and wages.
How is gross profit determined?
By subtracting the cost of sales from revenue.
What are administrative expenses?
General overheads such as office salaries, IT expenses, and telephone bills.
What are other operating expenses?
Small irregular expenses like subscriptions, stationery, postage, and office supplies.
What is finance income?
Interest received by the business on deposit accounts.
What are selling expenses?
Expenses directly related to selling, such as sales commissions and advertising.
What is operating profit?
Profit generated from the firm’s main activities, excluding financial income.
What is finance cost?
Interest paid on loans.
How is profit for the year determined?
Operating profit minus finance costs.
What is profit for the year after tax?
The final profit amount left after subtracting all expenses, including taxes.
Why does the statement of comprehensive income show figures for two years?
To allow comparisons of financial performance over time.
How can the statement of comprehensive income help with investment decisions?
It shows profit trends, which influence decisions on future investments.
How does the statement help with cost analysis?
It shows cost trends, allowing businesses to control expenses.
How can businesses use the statement for future forecasting?
They can predict future earnings based on past trends.
How can investors use the statement?
To compare businesses and decide where to invest funds.
What is normal profit?
The minimum profit a business needs to make to retain the interest of the owner(s).
How does profit affect resource allocation in industries?
Money flows into profitable industries and out of declining ones.
Why is profit a measure of business performance?
Successful businesses generally have higher profits due to efficient operations and quality products.
Dividend
Share of the profit paid to shareholders in a company
Adjustments
Includes adjustments for the profits made on the disposal of assets
