Income statement Flashcards
What is an income statement
reports the profitability of the companies operations over a period of time
What is a record of profit and loss ?
A record of income generated, and incurred over a period of time
What is accrual based accounting ?
revenue and costs must be recognised as they are earned or incurred not as money received or paid
What is cash based accounting ?
Revenue is accounted when cash is received
Costs are accounted when cash is paid
Cash based accounting is not in accordance with International Financial Reporting Standards (IFRS)
What are the two different methods of depreciation ?
straight line
reducing balance
What factors need to be taken into account when considering depreciation ?
The cost of the asset
the usefulness life of the asset
residual value (disposable value)
depreciation methods
What is the straight line method ?
The loss of value will be spread equally over the useful life of an asset. So, the depreciation amount is the same each year
What is the reducing balance method ?
This is where for each year, you work out the depreciation charge as a percentage of the accounting value brought forward
What is bad debt ?
When businesses offer their services they allow you to pay on credit however if the creditor goes bankrupt they cant pay back the expense. This is known as bad debt and is filed under expenses
