INCOMPLETE Topic Four, Part 10 - Income Statement Flashcards
What are index numbers?
numbers from different years are valued based on a base year
Why are index numbers used?
numbers from each year are compared with the base year for comparisons
What are the formulas for index numbers?
number in year required / number in base year x 100
Price in year / Price in base year x 100
What is an income statement?
How much is made from selling and paid out in costs. profits or losses made from trading.
Who uses the financial information?
- Investors
- the tax person
- Workers
- Lenders of money e.g. banks
- Competitors
What is the formula for gross profit?
Sales revenue - cost of goods
What is the formula for operating expenses?
Gross profit - expenses
What is the formula for profit before tax?
Operating profit - finance costs.
What is the formula for retained profit?
Profit and dividends - tax
What is sales revenue?
Income from the sale of goods and services
What is the formula for sales revenue?
price x sales
What is the cost of sales?
Cost of producing or buying the business goods
What is the formula for cost of sales?
Opening inventory (from the previous year) + purchases in this year - closing inventory (what stock is left).
What is net profit?
Profit after all costs are deducted from sales revenue
What is ‘‘Interest received or earned”?
An additional source of income added to accounts after operating profits and before net profit
What are the three divisions of an income statement?
- Trading account
- The income statement
- The appropriation account:
What is included in the trading account section?
-The figures used to calculate gross profit. –Considers sales revenue and cost of sales. -Judges efficiency
What is included in the income statement section?
Considers the sales revenue, cost of sales and overheads
What is the appropriation account?
Shows what happens to the net profit. Sole Traders and Partnerships don’t have to do this
What is operating profit?
Money made after ALL expenses have been paid, but before tax
What is depreciation?
Reduction in asset value over time
What is Profit before interest and tax (PBIT)?
Similar to operating profit but includes depreciation charges
What is finance cost?
Interest and other costs a business incurs from borrowing funds
What is dividend payment?
The money returned to shareholders as a reward for their investment
What does it mean to compare two years of accounts?
An income statement often refers to two years enabling a comparison to be made
What is the usefulness of an income statement?
- monitor progress
- help calculate ratios
- help create objectives
What is an interim report?
Declares a PLC’s profit every 3-6 months
