Income statement Flashcards
What is the purpose of an income statement?
Reports the profitability of the company’ operations over time
shows net profit/loss
What is profit used for?
Pay dividends to stockholders
keep for retained earnings for furture growth
Why is the statement of profit and loss useful
Performance in last period
Basis for predicting future performance
Assess the risk of future cash flow
What is the accrual concept?
Recognised as earned/ incurred rather than money being paid
- in accordance to IFRS
What is cash-basis accounting
Revenues and expenses are recognised when cash is received/ paid
How should a prepayment be noted in income statement
As an asset that is already paid
Cost of sales
Direct cost incurred for good sold
Operating expenses
All other expenses incurred for trade
e.g rent, wages, stationery
