P&L/Income statement Flashcards
What is the formula for gross profit?
Revenue - cost of sales
What does P&L show?
Performance of the business for the year
Income earned and expenses incurred to earn that revenue
What is revenue?
Sales income earned
Include any revenue earned in the period
What is costs of sales/purchases?
Expenses incurred directly to earn revenue
What is the accruals concept?
Sale placed in the accounts when it’s made, not when paid
What is the formula for profit from operations?
Gross profit - Distro costs - Admin costs - Other operating costs
What is included in admin costs?
Head office costs
Rent
On what basis is the P&L prepared?
Accruals basis
What are finance costs?
Interest paid on money borrowed
What is the formula for profit before tax?
Profit from operations - finance costs
How is annual profit calculated?
Profit before tax - income tax
If a prepayment is treated as an accrual, what is the effect on profit?
Understated by double the accrual
If an accrual is treated as prepayment, what is the effect on profit?
Overstated by double the accrual
