Financial statements

Question 1

Gross profit =

Answer 1

Gross profit = revenue - cost of sales (costs to manufacture and sell/provide services)

Question 2

What does a statement of profit or loss do

Answer 2

• Measure of financial performance
• Shows profit/loss during a specific period
• Summarises all revenue and expenses
• Prepared on an “accruals” basis

Question 3

Operating profit =

Answer 3

Operating profit = gross profit - operating expenses eg. rent, staff costs, depreciation

Question 4

What does a statement of financial position do

Answer 4

• Shows assets and liabilities

Question 5

Equity =

Answer 5

Equity = assets - liabilities

Question 6

Non-current asset =

Answer 6

Any asset acquired on a long-term basis (12+ months) which provides a service ot the business

Question 7

Current assets =

Answer 7

Assets expected to be realised within 12 months, sold or consumed in the usual operating cycle.

Question 8

What does a statement of Changes in equity do

Answer 8

• Summarises movement in equity balances from start to end of reporting period
• Main equity categories:
  1. Share capital
  2. Share premium
  3. Retained earnings

Question 9

What does a statement of cash flows do

Answer 9

• Summarises cash paid and received through the reporting period
• On a cash basis
  3 key sections to assess how cash is made:
  1. Operating activities
  2. Investing activities (investing in itself to grow)
  3. Financing activities (external activities eg. shareholders)

Question 10

What does a statement of cash flows help to assess

Answer 10

• Liquidity/solvency of a business
  (high liquidity = lots of cash)
• Financial adaptability
• Future cash flows
• Self-sufficiency