Financial Statements

Question 1

What are financial statements?

Answer 1

A formal record of the financial activities and financial position of a business. Financial statements are produced for legal and tax reasons, as well as for different stakeholders and potential investors. They give an idea of the financial position and performance of a business.

Question 2

What does an income statement show?

Answer 2

• A business’ financial performance over a period of time.

- It shows the revenue, costs and profits of a firm.

Question 3

What does a cash flow statement show?

Answer 3

• An overview of the cash that has come in and out of the business in the past year.
• It also gives the net cash flow, opening and closing cash balance.

Question 4

What does statement of financial position (balance sheet) show?

Answer 4

• This reports the assets, liabilities and equity of a company on a given date.
• It essentially shows what a business own and what it owes.

Question 5

What are the 3 key components of a statement of financial position?

Answer 5

• Assets (anything with a value that a company owns)
• Liabilities (any money that a business owes to any other organisations or people.
• Equity (the portion of the company’s assets that are owned by the owner.)
  Equity = total assets - total liabilities

Question 6

What are the 2 main components of an income statement?

Answer 6

• Profit and loss account
  (This includes all expenses not directly involved in making and selling the product. It works out net profit.)
  Other expenses include rent, advertising, depreciation and much more.
• Trading account
  (This shows the total revenue a firm has made form sales, the cost of sales and the gross profit.

Question 7

What does operating profit =?

Answer 7

Operating Profit = Gross Profit – Expenses

Question 8

What does net profit =?

Answer 8

net profit =total revenue - total costs (amount left after all costs have been taken away.

Question 9

What does gross profit= ?

Answer 9

gross profit = revenue - cost of sales

Question 10

The higher a business’ gross profit it is, the _______ the difference between the price and the cost of sales. This is ______ for a business as they are making more profit excluding business’ other costs.

Answer 10

greater, better

Question 11

How do we calculate Gross Profit Margin (%) (This is gross profit as a percentage of revenue)

Answer 11

Gross Profit Margin (%) = (Gross Profit/Revenue) x 100

Question 12

What is net profit?

Answer 12

Net profit is the profit left over after all costs have been taken away from revenue.

Question 13

How to be calculate net profit margin?

Answer 13

net profit (%) = (Net Profit/Revenue) x 100