statement of comprehensive income Flashcards
what is an income statement
a financial document showing a firm’s expenses and income for a specific trading period
what is profit
the money left after deducting costs from revenues
what is retained profit
profit kept in the business and not distributed to the owner
what is normal profit
the minimum profit required to retain the interest of owners
what is the purpose of an income statement
to calculate profits for a specific trading year
what are the two types of profits shown in an income statement
gross profit, operating profit
what is operating profit
after deducting overheads and other costs
how is gross profit calculated
gross profit = revenues − cost of sales
what is gross profit
before deducting overheads
what are revenues in an income statement
the money received from selling goods and services
what is the cost of sales
the costs of producing products, like purchasing raw materials
what are other operating expenses
expenses not included in administrative costs
what are administrative expenses
general overheads or operating costs of the business
what are selling expenses
costs directly related to selling products
how is operating profit calculated
operating profit = gross profit − administrative expenses − other operating expenses
how is profit for the year calculated
profit for the year = operating profit − finance costs
what is profit for the year after tax
the profit left after all expenses, including taxes, are deducted
what are finance costs
interest paid on loans
how is the income statement used for future forecasts
by analyzing profit trends to plan for improvements and expectations
how is the income statement used for cost analysis
evaluating increases or decreases in costs, like finding cheaper suppliers
how is the income statement used for investment decisions
to assess if profits are sufficient for new projects and compare past performances
how is the income statement used for making comparisons
comparing operating profit with rivals to identify areas for improvement
what is the nature and importance of profit
profit motivates people to start businesses, normal profit retains owners’ interest in the business, high profit attracts investment, profit serves as a measure of business success
