income statement Flashcards
define Final Accounts
are prepared at the end of the financial year and give details of the profit or loss made as well as the worth of the business.
Profit
formula and defination
Profit = Sales Revenue – Total cost
When the total costs exceed the sales revenue, then a loss is made.
How to increase profit?
- Increase sales revenue
- Cut costs
define Accounts
are the financial records of a firm’s transactions.
Why is profit important to a business? (4)
- It is a reward for enterprise
- It is a reward for risk-taking
- It is a source of finance
- It is an indicator of success
state why Profit is not the same as cash flow
Profit is the surplus amount after total costs have been deducted from sales. It includes all income and payments incurred in the year, whether already received or paid or to not yet received or paid respectfully.
In a cash flow, only those elements paid in cash immediately are considered.
define Income Statement
An income statement is a financial document of the business that records all income generated by the business as well as the costs incurred by the business and thus the profit or loss made over the financial year.
Cost of Sales formula
Cost of Sales = total variable cost of production + (opening inventory of finished goods – closing inventory of finished goods)
Gross Profit formula
Gross Profit = Sales Revenue – Cost of Sales
Expenses formula
Expenses:
all overheads/fixed costs
Net Profit formula
Net Profit = Gross Profit – Expenses
Profit after Tax formula
Profit after Tax = Net Profit – Tax
Retained Profit for the year
define and state the formula
Retained Profit for the year = Profit after Tax – Dividends
This retained earnings is then kept aside for use in the business.
Uses of Income Statement to managers (4)
- know the profit/loss made by the business
- compare their performance with that of previous years’ and with that of competitors’.
- know the profitability of individual products
- help decide what products to launch
