Finance - Income Statement

Question 1

What is the purpose of an income statement?

Answer 1

• Shows how much profit or loss a business has made over a period of time (usually one year)

LTDs must make a copy of their income statement avaliable to the public

Can be used for decision making

Question 2

Define the following terms:
* Sales
* Opening Inventory
* Purchases

Answer 2

Sales - Income received by the business from selling its goods

Opening inventory - Inventory left from last year which can be sold in the current year

Purchases - Amount of inventory purchased in the current year

Question 3

Define the following terms:
* Closing Inventory
* Gross profit
* Expenses
* Profit for the Year

Answer 3

Closing inventory - Amount of inventory left at the end of the current year which has not been sold

Gross Profit - Profit made from buying and selling

Expenses - Costs incurred in running the business

Profit for the Year - . Overall profit made for the year

Question 4

Give the formulae for the following:
* Gross Profit
* Profit for the Year

Answer 4

• sales income - cost of sales
• Gross profit - Expenses