Income Statement

Question 1

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

Answer 1

The level of sales revenue.
The size of the mark-up.
The control of costs (eg keeping costs to a minimum).

Question 2

How can a business make a loss?

Answer 2

If sales are low.
If raw materials are too expensive.
If expenses are too high.

Question 3

What is the calculation to find the Profit made?

Answer 3

Selling Price - Cost Price = Profit
OR
Total Revenue - Total Costs = Profit

Question 4

What do businesses do at the end of a Trading Year?

Answer 4

Create an Income Statement to show how much profit has been generated by the business.

Question 5

What is the main purpose of an Income Statement?

Answer 5

The main purpose of an Income Statement is to calculate the profit.

Question 6

What are the 2 types of profit calculated in an Income Statement?

Answer 6

Gross Profit - The profit on buying and selling the inventory.
Profit for the Year - The final profit for the business before tax is deducted (It is Gross Profit - Expenses).

Question 7

What are Expenses?

Answer 7

Costs/Overheads incurred by the business (eg wages, rent, electricity).

Question 8

What are 4 things an Income Statement also do?

Answer 8

Show level of success in selling products/services.
By used to calculate tax to be paid to the Government.
Show where expenses could be reduced.
Aid decision making (eg to increase selling price).