Income statement Flashcards
What is the income statement
The income statement provides a link between two balance sheets or two points in time
The Income statement shows movement of retained earnings (income and expenses)
What are the two types of ownership claims in a business
Type 1: Ownership arising from capital contributed by owners (Paid in Capital)
Type 2: Ownership arising from the sale of goods and services OR the payment of dividends (Retained Earnings)
These two different types of ownership distinguish the owners’ contributions from how well the business is doing
What does retained earnings comprise of
Changes arising from the sale of goods and services
Calculating retained earnings we add any income and we subtract any expenses. Changes arising from dividends also are included
Explain how dividend declared works
Dividend declared - BOD declares dividend on some future date all shareholders will receive dividends - Accountants will book this as a liability
What is the Statement of Retained Earnings formula
Start retained earnings + Income-divs declared = end retained earnings
Formula for EPS
EPS = Net income/ No. of shares
Income for a year calculated from the balance sheet
Income for a year (2016) = Retained earnings 31/12 2016 - Retained earnings 2015 - Dividends for the year
How to calculate the basic shares figure on the balance sheet
Basic shares = Net income/No. Of shares issued
Income Formula
Income = Revenue - Expenses
Gross profit formula
Gross Profit or Gross margin = Revenue - Cost of Goods sold
Define accruals
divs payable, wage payable expenses due
Define prepaid
paid in advance for service. This asset is gradually used up
Define dividends payable
owed money to shareholder
Case probability is remote - what does this mean
the event is unlikely and nothing happens in accounts
What does COGS stand for
Cost of goods sold
