Income Statement

Question 1

How do you find the profit made?

Answer 1

Selling price - Cost price = Profit
or
Total revenue -Total costs = Profit

Question 2

What does the amount of profit made by a business depend on?

Answer 2

The level of sales revenue

The size of the mark-up (the extra added on to the cost of the product to give the selling price)

The control of costs (i.e. keeping costs to a minimum)

Question 3

What are some reasons a business may be making a loss?

Answer 3

Sales are low

Raw materials are too expensive

Expenses are too high

Question 4

What are the 2 types of profit calculated from an income statement?

Answer 4

Gross Profit
Profit for the Year

Question 5

What is Gross Profit?

Answer 5

The profit on buying and selling the inventory.

Question 6

What is Profit for the Year?

Answer 6

The final profit for the business before tax is deducted (gross profit - expenses).

Question 7

What are the main purposes of an income statement?

Answer 7

To calculate the profit (gross profit and profit for the year).

To show level of success in selling products/services.

To show where expenses could be reduced.

Be used to calculate tax to be pad to the Government.

To aid decision making (e.g. to increase selling price).

Question 8

Describe sales revenue

Answer 8

Sales revenue refers to the income generated from selling the products to customers.
It is the selling price x units sold.

Question 9

Describe expenses

Answer 9

Expenses refers to costs/overheads incurred in the running of the business e.g. rent, wages, advertising.

Question 10

Describe purchases

Answer 10

Purchases refers to the cost of goods bought from our suppliers.