Trading Profit And Loss Account (income Statement)

Question 1

Profit and loss account

Answer 1

A profit and loss account (income statement) shows whether a business has made a profit or loss during a certain period of trading, usually at the end of the trading year. It will also help management to identify how profit arose, by categorising costs between the cost of sales and expenses.

Question 2

Cost of sales

Answer 2

The direct costs involved in making the sales revenue. It includes paying for labour and raw materials stock

Question 3

Calculating cost of sales

Answer 3

Beginning inventory+ new inventory-ending inventory

Question 4

Gross profit formula

Answer 4

Revenue - cost of sales

Question 5

Net profit formula

Answer 5

Gross profit - total expenses

Question 6

Why do we need them

Answer 6

Compare to previous years
Compare to rivals
Help current investors
Encourage new potential investors to

Question 7

What are operating expenses

Answer 7

Indirect costs

Question 8

Operating profit formula

Answer 8

Gross profit- operating expenses

Question 9

Ways to improve profit

Answer 9

Increase sales revenues
Reduce direct costs
Reduce indirect costs