Income Statement Flashcards
what accounting question is answered by the income statement
what return is the organisation making
what does plc stand for
public limited company
what does the public mean in plc
shares are sold on the stock market to the public
what does the limited mean in plc
shareholders have limited liability, they can only lose what they have invested, receiving share of the profit with no risk of personal loss
what does the year number mean in the title
the income statement only shows items relevant to that year
what does the income statement show
incomes and expenses, profit or loss over a period of account (usually one year)
what four profits are listed on the income statement
gross profit, operating profit, profit before tax, profit for the period
what is revenue recognition
a point in time when a sale can be shown in the income statement. sales can be recorded even if no cash has been received
what is revenue
amount to be received in return for supply of goods or services in current year
when can revenue be recognised
- ownership and control transferred
- revenue can be measured reliably
- customer recognises liability and willingness to pay
what is cost of sales
cost of the goods or services sold to generate the revenue
cost of sales in retail business
amount paid for the goods sold
opening stock + purchases (of stock) - closing stock
cost of sales in manufacturing business
actual cost of producing product sold
materials + production wages + factory costs
cost of sales in service business
actual costs of providing the service
what is gross profit
have the goods and services been sold for more than they cost to provide
revenue - cost of sales
this is the first profit before any other expenses
what are the four expenses listed on the income statement
distribution costs, administrative expenses, other expenses, total operating expenses
what is an expense
any cost not included in cost of sales
what is the accruals concept
revenue and expenses recorded in the period they are earned or incurred, regardless of cash payments
what are accruals
unpaid owing charged (add)
what are prepayments
paid in advance (deduct)
what is operating profit
amount of money a company makes from its core business activities, after deducting all the expenses related to running the business
gross profit - total operating expenses
what is another term for operating profit
profit before interest and tax
what is important about the operating proft
it is the profit which operational managers can have day to day control over
what are net finance costs
interest payable (on bank loans and borrowings) - interest receivable (on bank deposits and investments)
what is taxation
companies pay corporation tax on profits. it is complex and involves many adjustments which are discussed with HM revenue and customs
what is profit for the period
profit a business earns after deducting all expenses, interest and tax
profit available to owner/shareholder
gross profit - operating expenses - interest - tax
