The Income Statement Flashcards
What is the income statement also called?
The profit and loss account.
What is a public limited company?
A company which has sold shares to investors (the public) as a way of raising the capital to fund its growth.
What does the term limited liability mean?
That shareholders can only lose the investment that they made in the company, no risk of sharing losses. They receive a share of the profit.
What does the income statement show?
The profit or loss earned by a business in a particular accounting period.
What are the four profits on the income statement?
- Gross profit
- Operating profit
- Profit before tax
- Profit for the period
What is the revenue?
The amount that is to be received from customers in return for goods or services in the current year.
What should happen to the sales in which no cash has yet been received?
They should still be recorded.
What is revenue recognition?
The point in time in which a particular item of revenue can be shown in an income statement.
What is the cost of sales?
The cost of the goods/services to generate the revenue.
How would you calculate the cost of sales for a retail business?
Opening stock+Purchases-Closing stock
Would the cost of sales include advertising and head office secretarial costs?
No
What is the first measure of a companies profit?
The Gross profit/Gross margin.
How do you calculate the gross profit?
Revenue - Cost of sales
What are the expenses on the IS?
All the costs not included in the cost of sales. E.g. advertising, rent, insurance, depreciation.
What is the accruals concept?
Revenues and expenses recorded on the IS in the period they are earned/ incurred, regardless of cash payments.
What is an accrual?
What is depreciation?
A non-cash expenses, which is the cost of using an asset over a period of time.
What is the operating profit?
The profit before the interest and taxation.
How is the operating profit calculated?
Gross profit - Total operating expenses
What is another name for the operating profit?
PbIT= Profit before interest and tax
What is a very important profit measure and why?
The operating profit. Management have little control over the interest and tax and so it allows a profit managers can exercise day-to-day.
What does NET mean?
Something that has been taken away.
What is the net finance costs?
The interest payable on bank loans and other borrowings and the interest receivable on any bank deposits and other investments.
How do you calculate the net finance costs?
Interest payable - Interest receivable
