Statement Of Profit And Loss

Question 1

What does an income statement/income of statement of profit and less

Answer 1

• record of income generated, and expenditure incurred over a given period, usually a yearly period
• provide a basis for predicting future performance

Question 2

The accrual concept

Answer 2

Transactions and events should be recorded when they occur, not when cash is received or paid
E.g. You provide a service in December but the customer pays in January
- The accrual concept means that you record the service in December, not in January when the payment arrives

Question 3

Income statement structure

Answer 3

1. Gross profit
2. Operating profit
3. Profit for the period

Sales revenue - cost of sales = gross profit - operating expenses = operating profit - interest payable + interest receivable = profit for the period

Question 4

Cost of sales calculation

Answer 4

Opening inventory + purchase - closing inventory

Question 5

Straight line depreciation

Answer 5

• equally spread over its useful life

Question 6

Reducing balance

Answer 6

• depreciation as a percentage of the accounting value

Question 7

Bad debts

Answer 7

• if a company who owns money goes bankrupt known as bad debt