Finance - Income Statement

Question 1

What is the income statement?

Answer 1

Also known as a trading, profit and loss account. It is used to report the level of profit/loss a business has over a given trading period (usually one year)

Question 2

What are the 3 parts of the income statement?

Answer 2

Trading account, Appropriation account and the Income statement

Question 3

What is the trading account for?

Answer 3

used to calculate the gross profit over a specific trading period (usually one year) It shows the income from sales and the cost of sales

Question 4

Cost of sales formula?

Answer 4

opening stock + purchases - closing stock

Question 5

What is the appropriation account?

Answer 5

This shows how the profit or loss is utilised. Shows the proportion of the net profit is distributed as dividends and proportion of what is kept as retained profits

Question 6

How do you analyse NPM?

Answer 6

10% or below = poor management of costs + expenses
11-17% = satisfactory but could be better
Above 17% = Effective management of costs + expenses

Question 7

What is the Income statement used for?

Answer 7

This calculates net profit. This deducts all expenses from gross profit. This provides a more accurate means of assessing financial performance