Income statements

Question 1

Importance of profit to a business

Answer 1

1. it is a reward for enterprise
2. it is a reward for risk taking
3. it is a source of finance
4. it is an indicator of success

Question 2

state the 9 components of an income statement in order

Answer 2

1. Sales revenue
2. Cost of sales
3. Gross profit
4. Expenses
5. Net profit
6. Corporation tax
7. Profit after tax
8. Dividends
9. Retained profits

Question 3

how to calculate Sales revenue

Answer 3

Sales revenue = total sales

Question 4

how to calculate Cost of sales

Answer 4

Cost of sales = Total variable cost - (opening inventory of finished goods - closing inventory of finished goods)

Question 5

how to calculate Gross profit

Answer 5

gross profit = sales revenue - cost of sales

Question 5

how to calculate Expenses

Answer 5

these are ALL fixed costs

Question 6

how to calculate Net profit

Answer 6

Net profit = gross profit - expenses

Question 7

how to calculate Corporation tax

Answer 7

there’s nothing in my notebook

Question 8

how to calculate Profit after tax

Answer 8

Profit after tax = Net profit - corporation tax

Question 8

how to calculate Profit after tax

Answer 8

Profit after tax = Net profit - corporation tax

Question 9

how to calculate dividends

Answer 9

Dividends = share given to shareholders/ return on shares/ retained earnings

Question 10

how to calculate Retained profits

Answer 10

Retained profits = profit after tax - dividends

Question 11

what are the uses of an income statement

Answer 11

1 - to know whether a profit or loss was made in the business
2 - compare their performances with previous years; e.g. seeing where they went wrong and rectifying the problems
3 - to know the profitability of individual products; production of a product can be stopped if its making losses
4 - it helps to decide what products to launch in future by seeing what does well and what doesn’t