finance (income statement) - term 2 Flashcards
what is the purpose of an income statement
to help the business calculate how much profit it has made over a period of time.
what are the three expenses
- selling
- administrative
- financial
examples of selling expenses
- commission
- salaries
- wages
- advertising
- delivery expendses
examples of administrative expendses
- rent
- accountant fees
- insurance payments
- electricity
- stationary
examples of financial expenses
- interest payments
- lease payments
- dividends
what are selling expenses
relate to the process of selling the good or service and can be directly traced to the need for sales
what are administration expenses?
costs directly related to the general running of the business
what are finance expenses
costs associated with borowing money from outside people or organisations and to minimising business risk
how do you calculate net profit
gross profit - expendses = net profit
how do you calculate gross profit
revenue - COGS
what is revenue
refers to money received in the normal cause of trading or operating
what is opening stock
the value of stock (inventory) that the business has at the start of the financial year
what is closing stock
is the value of stock on hand at the end of the financial year
how do you calculate the cost of goods sold (COGS)
opening stock + purchases - closing stock
what is profitability
a business’s ability to generate revenues in excess of the costs incurred in producing those revenues
