Income Statements Flashcards
How is profit made
Profit = revenue - total costs
Therefore reducing costs and increasing revenue will increase profits
What is an income statement
Is financial statement that records the income of business and all its costs over period of time
Revenue definition and equation
Revenue is the income to business during a period of time from sales of goods and services
Price x quantity sold
Cost of sales
Cost of sales also known as variable costs is the cost of production of goods services sold by the business which varies on how many goods and services you make and provided
Gross profit definition and equation
Gross profit is the money you have left after paying for the things you sold to customers.
Revenue - costs of sales = gross profit
Net profit
The profit made by a business after all costs have been deducted from the revenue
Gross profit - expenses = net profit
Income statement
Revenue - 1250
Cost sales - 900
1250 - 900 = 350 = gross profit
Expenses - 155
350 - 155 = 195 = net profit
GPM - gross profit margin definition and equation
A main profitability ratio it tells you what your business made after paying for the direct cost of doing business
Gross profit / revenue x 100 = (percentage)
NPM - net profit margin
One of the main profitability ratios it measures how much net income or profit is generated as a percentage of revenue
Net profit/ revenue x 100 = net profit margin
What is profitability
The measure of how quickly and efficient we can make profit we use profitability ratios to help us analyse the business performance and to compare it to other businesses
