Chapter 3 Flashcards
Profit
increase of wealth arising through business operations
Revenue
inflow of assets or decrease in liabilities arising from trading operations
What can revenue be recognised as
the amount a business is entitled for providing good / services once control of goods is passed to the customer
Four types of revenue
- sales of goods
- fees for services
- subscriptions
- interest received
Expenses
measure of the outflow of assets or increase in liabilities incurred whilst generating revenue
Cost of sales
the cost of buying or making the goods sold during a period
Four types of expenses
- cost of sales
- salaries and wages
- rent
- heat and light
Calculation for profit (or loss) for period
total revenue - total expenses
Gross profit
the amount remaining after cost of sales has been deducted from trading revenue
Equation for gross profit
revenue - COGS
Operating profit
profit after operating expenses have been deducted from revenues from operation
Equation for operating profit
gross profit - operating expenses
Profit for the period
any non operating (interest received) income less interest payable, added to equity figure
Equation for cost of sales
opening inventory + purchases - closing inventory
Income statement layout (8)
- sales revenue
- cost of sales
- gross profit
- operating expenses
- operating profit
- non operating expenses
- non operating income
- profit for the period
