Lecture 5 - preparing income statement for gross profit

Question 1

what is a baalnce sheet / statement of financial position

Answer 1

statement of what one owns , owes is owed and worth

at a specific point in time

Question 2

whats a useful way to remeber the bbalance sheet in terms of time period

Answer 2

a snapshot -as its taken at a specific point in time

Question 3

what do you ahve to remeber when preparing a balance sheet in terms of the title

Answer 3

title written as : statement of financial position as at DD/MM/YYYY

Question 4

the balance sheet shows the what of the business

Answer 4

finanical position

Question 5

What is the income statement

Answer 5

statement showing if business has made a profit or loss during a particular period

Question 6

how do we write the title of the income statement

Answer 6

ABC income statement for the period of the year ended DD/MM/YYYY

Question 7

what does the income statement show for the firm

Answer 7

financial perfomancce

Question 8

what does bookepper do

Answer 8

transaction recording

then come up with trial balance

showing us final balance of the T account

Question 9

from this point are we still acting as a bookeeper

Answer 9

no accountant

Question 10

outline the structure of the income statement

Answer 10

title = ABC income statement for the year ended

revenye
(less)cost of sales
gross profit

(less:)
selling and distribution costs
admin expenses
finance costs
tax

net profit/(loss) for the period

Question 11

what is the biggest and main trading income (on the income statment)

Answer 11

revenue

Question 12

how many groups of expenses are there

Answer 12

5

Question 13

state the 5 griups of expenses

Answer 13

cost of sales

selling and distribution costs

administrative expenses

finance costs

tax

Question 14

within expenses there can be many items in each T/F

Answer 14

T

Question 15

What is cost of sales

Answer 15

production cost of all units sold during period

Question 16

sellign and distribution costs

Answer 16

all costs that facilitate the marketing, sales, and distribution of goods or services.

Question 17

admin expenses

Answer 17

expenses

not related to the cost of goods or sales,

such as salaries/expenses related to admin tasks

Question 18

finance costs

Answer 18

costs incurred from borrowing from lenders/ creditors.

Question 19

tax costs

Answer 19

total amount of taxes owed by company to a taxing authority

Question 20

what gives us the net profit or loss for the period

Answer 20

revenue - all 5 groups of expenses

Question 21

outline structure of balance sheet - 5 things

Answer 21

title - ABC statemtn of financial position as at DD/MM/YYYY

Non Current Assets + current assets = total assets

Non Current Liabilities + Current Liabilities = total liabilities

Net Assets = Total Assets - Total Liabilities

= Capital / Equity

Question 22

balance sheet is just

Answer 22

list

Question 23

what don’t we do wit teh balcne sheet

Answer 23

cant just start taking numbers from the trial balance and putting them into statements immediatley

got to make adjustments

Question 24

what do period end adjustments show

Answer 24

what number should appear for income in profit and loss account and how much should appear in each expenses group

Question 25

matching principle

Answer 25

Assumption that in the measurement of profit, costs should be set against the income which they generate i.e during the period in which income arises

Question 26

matching principle is related mainly to the

Answer 26

income statement

Question 27

explain the matchin principle using the revenue example

Answer 27

if revenue (cash or credit) is noted down for the 12 month period the expenses have to eb for that 12 month period

Question 28

explain mathcing principle using the company rent example

Answer 28

company pays 3000 for 2 years rent in advance but as an accountat you identify this is for 24mnth period not the 12 so you split it in half to be able to include it in tehe PL account

Question 29

trial balance lists the balances on the ..... accounts - what are these used for

Answer 29

ledger accoutn s used to prepare the financial statments

Question 30

before we prepare the financial statements what should be done and why

Answer 30

period end adjustments necessary to comply with the matching principle

Question 31

what are the 4 period end adjustments we need to do

Answer 31

cost of sales depreciation bad det written off and provision for bad debt Accruals and Prepayments

Question 32

what is cost of sales what is their value converted to what are they mainly related to

Answer 32

value of goods removed from inventory because they've been sold from an asset to an expense to production costs ## Footnote It's like calculating how much it cost you to get those toys out of your store because people bought them.

Question 33

big formula for cost of goods sold ( 5 things to remember)

Answer 33

opening stock (inventory at the start of the year) + purchases (cost of Rm) - after deducting any returns + carriage in (delivery costs) -closing inventory ( stock at the end of the year)

Question 34

simple formula for cost of sales

Answer 34

opening stock + purchases - closing stock

Question 35

when constructing the income statement what is not represented and why ( in terms of columns)

Answer 35

two columns don't represent debit and credit - just presentation purposes + don't care about credit and debit as an accountant

Question 36

when constructing the income statement / calc cost of sales always look for

Answer 36

purchase/sale returns in Trial balance

Question 37

how do we prepare an income statement

Answer 37

write name of business and * income statement for the year ended 30 April 2021* revenue cost of sales and then under that have invetory of goods at opening date add :purchases then underline the sum less inventory of good on closing date ( in brackets cause its negative) then have cost of sales again then underline put in (brackets) write gross profit figure on the same side as r ( the other studd fo on the other side) ask if this is really necessary ?