income statement

Question 1

sales revenue

Answer 1

The amount of money made from selling goods or services.

Question 2

cost of sales

Answer 2

The amount of money spent on selling goods. Calculated by:

(opening inventory + purchases) – closing inventory

Question 3

gross profit

Answer 3

The profit made from buying and selling. Calculated by:

Sales revenue – cost of sales

Question 4

expenses

Answer 4

Running costs incurred throughout the year

Question 5

profit for the year

Answer 5

The profit made after expenses are deducted from gross profit.
Calculated by:

Gross profit - expenses

Question 6

what are some purposes of preparing an income statement

Answer 6

-shows the profit/loss made by the company from the buying and selling of goods

-can be used to compare gross profit and profit for the year over different years of trading to identify any trends and to aid decision making

-comparisons can be made with similar companies in the same industry

-can be used to compare expenses and sales over the years or between department to see if there are any areas where they can be minimised or improved