Income statements Flashcards
What is an income statement?
A financial statement setting out a business’ revenue,expenses and the profit or loss over a given period of time
what are the three main sections of the income statement?
Trading (calculating profit/loss)
Profit and loss (operating profit/loss)
appropriation accounts (shares the profit out e.g to shareholders)
How do you calculate gross profit?
revenue - cost of sales
How do you calculate revenue?
quality sold x selling price
how do you calculate profit for the year?
operating profit + non operating income
Why are income statements useful?
1) Allows shareholders and owners to see how the business is performing
2) enables comparisons with other similar businesses
What is operating profit?
The money a business gets to keep after all the costs have been deducted from revenue
What are cost of sales and how are they calculated?
These are variable costs e.g direct wages and raw materials
- These are deducted from sales revenue to give gross profit
What is gross profit?
This is whats left over after costs of sales has been deducted from sales revenue
what is non operating profit?
Profit you get from non trading activities e.g renting out the top of your shop
What is meant by profit quality?
The degree to which the profit figure is sustainable in the future
what is meant by profit utilisation?
The way in which profit is used e.g how its shared between shareholders
