Statement of Profit or Loss

Question 1

What is the extended Balance Sheet Equation?

Answer 1

(Capital + Liabilities) – (Income + Expenses)

Question 2

Why is Expenses on the same side as Assets?

Answer 2

The reason Expenses is on the same side as Assets is because things like rent, heat and electricity bring benefit for a short time which then technically make it an Asset - Assets bring benefit to the company.

Question 3

Why is Income on the same side as Liabilities?

Answer 3

And the reason why Income is on the same side as Capital/Liabilities is because (Income – expenses) is the Profit made by the business, which is then owed to the owner, since its being owed to someone it’s a Liability.

Question 4

What are the steps in a Statement of Profit or Loss?

Answer 4

1.) Sales – sales return
2.) Purchases – Returns
3.) (Purchases – Returns) + Opening Inventory – Closing Inventory
4.) Step 1 – Step 3 = Gross profit
5.) Add all the lesser expenses
6.) Gross Profit – Lesser Expenses = Net Profit

Question 5

What are the steps in a Statement of Financial Position?

Answer 5

Non Current assets
Current Assets - bank and cash in hands
Capital - drawing (-) and profit
Non Current liabilities - loan
Current liabilties - payables