Section F - Complete statements of comprehensive income and financial position and evaluate a businesses performance

Question 1

What is a statement of comprehensive income

Answer 1

This shows the trading position of the business which is used to calculate gross profit. It then takes into account all other expenses to calculate the profit or loss for the year.
This is the profit and loss account. Calculated by; sales revenue - all expenses

Question 2

What is a statement of financial Position

Answer 2

A snapshot of a business’s net worth at a particular moment in time, normally the end of a financial year. This is the balance sheet.

Question 3

What is cost of goods sold

Answer 3

The actual value of stock used to generate sales

Question 4

What is the purpose and use of the statement of comprehensive income - profit and loss account

Answer 4

It shows sales, costs and profits over a period of time. It gives an accurate calculation showing how much profit or loss the business has made

Question 5

What is the impact of positive gross profit on businesses

Answer 5

• There is money to pay for expenses
• Then maybe money available for better equipment or expansion
• The cost of sales is not too high
• Enough goods are being sold to produce a profit

Question 6

What is the impact of negative gross profit on businesses

Answer 6

• There’s no money to pay expenses or wages without a loan or overdraft - Which increases costs
• The cost of sales is too high - This could be reduced by buying cheaper supplies
• Sales revenue is too low - More goods must be sold.

Question 7

What is net profit

Answer 7

The money made from selling a product after all costs have been deducted

Question 8

What is the impact of positive net profit on businesses

Answer 8

• Expenditure is less than gross profit
• The business has money it can use to expand or improve

Question 9

What is the impact of negative net profit on businesses

Answer 9

• Gross profit is low or negative
• Expenditure is too high
• the business is losing money

Question 10

What are the two ways to calculate depreciation

Answer 10

1. Straight line method
   This is when an asset is depreciated by a set amount each year.
2. Reducing balance depreciation.
   This is when an asset is depreciated by a set percentage of its remaining value each year.

Question 11

Adjustments will be made to a statement of comprehensive income so that the expenditure shown matches the period in which the good or service is used. What two types of adjustments are made?

Answer 11

Prepayments and accruals

Question 12

What are prepayments

Answer 12

A prepayment is when an expense is made in advance of the periods to which it relates. They are added to current assets on a balance sheet

Question 13

what is an accrual

Answer 13

An accrual is when an expense is paid after the period to which it relates.

Question 14

What are current assets

Answer 14

Items owned by the business that change on a regular basis, for example stock

Question 15

What are current liabilities

Answer 15

Something owed by a business that should be paid back in under a year, for example an overdraft

Question 16

What is capital employed

Answer 16

The total amount of capital tied up in a business at a point in time.

Question 17

What is the difference between tangible assets and intangible assets

Answer 17

Tangible assets can be touched, for example a machine or premise, an intangible asset cannot be touched, for example a trademark

Question 18

what is historic cost

Answer 18

Cost of an asset when first purchased

Question 19

What is the purpose of the statement of financial position- Balance sheet

Answer 19

It’s a summary of everything that the business owns (assets) and owes (liabilities) It therefore states the value of the business