Financial Statement: Income Statement Flashcards
What does an income statement show?
This shows the profit and loss an organisation has made over a period of time ( usually one year).
It shows how much money has come into the organisation and how much has been spent.
How do you interpretate sales (revenue)?
Sales revenue = selling price x number of sales
What possible reasons are there for falling sales revenue?
- shift in trend causing a fall in demands ( social)
- a rise in competition
- a fall in prices (the business discounting to beat competitors)
- unemployment
- a struggling economy
- poor reputation causing a fall in demand
- environment causing a change in weather.
- not advancing i.e. Not providing an online service (technology)
How do you interpret gross profit?
Gross profit = (decrease) sales revenue - (increase)cost of goods
Describe gross profit.
It enables is to see revenue, stock relationship, etc. We can use this figure to see whether the business is controlling its stock costs effectively.
What does a fall in gross profit result in?
The fall of gross profit can result in a low sales of revenue or high cost of goods, it could highlight a number of issues in the business.
What are the reason of fall in gross profit?
- a fall in prices ( perhaps due to competition)
- rise in supplier prices.
- stock wastage ( perhaps due to low key skilled employees)
- higher quality stock being purchased.
How do you interpreted profit of the year?
Profit of the Year= Gross Profit - Expenses.
Describe interpreting profit of the year.
We can use this figure to see if the business is controlling its expenses effectively.
What are reasons for falling profit of the year?
- any issue which reduce revenue or GDP.
- rising wages costs due to staffing number of wages.
- Rising interest payments on debt.
- Rising rent costs
- Rising advertising costs ( perhaps due to competition).
