Income statements 5.3 Flashcards

1
Q

How is profit made

A

Increasing revenue more than costs

Reducing cost of making product

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2
Q

What is the importance of profit to private sector businesses

A

Profit is needed to grow the business
If profit is made then the owners can make money as a reward
It can also be a source of finance

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3
Q

What is the difference between profit and cash

A

Not all cash paid into business is profit

Once all costs have been deducted from all revenue, amount left is the profit

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4
Q

What are the main features of an income statement

A

Revenue (Sellng price x Quantity sold)
Gross profit (Sales revenue – cost of sales)
Cost of sales (aka Costs of goods sold) is the cost involved in selling a product
Net profit (Gross profit – expenses) This is the actual profit after subtracting the business’ operating expenses
Retained profit (Profit kept by the business for its own use)

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