Unit 4.3 - profit and loss accounts Flashcards
Define income statement (profit or loss account)
A financial document showing a business’s sales revenue and costs, therefore profit or loss over a period
Define cost of sales.
These are the direct costs involved in making the sales revenue
Define gross profit.
Profit made before expenses have been paid
What’s the formula for gross profit?
Sales revenue - cost of sales
Define expenses.
Costs that are not directly involved in the production process or the making of goods
Define net profit.
The final profit made by a business after all costs have been paid
What’s the net profit formula?
Gross profit - expenses or sales revenue - costs of goods sold + expenses
What’s the gross profit margin formula?
Gross profit/sales revenue x 100
What’s the net profit formula?
Net profit/sales revenue x 100
What do the gross and net profit margins show?
How much of the revenue is profit, if 10% then 10p of every £1 of revenue is gross/net profit
What can a business do to improve revenue? (3)
Increase advertising and promotion to encourage people to buy
Increase the price of goods
Reduce the price of goods
What can a business do to cut costs? (6)
Buy lower quality materials
Buy materials in greater bulk to take advantage of bulk discounts
Cut wages and salaries of workers
Introduce technology to reduce the number of workers
Move to a different location where rents may be cheaper
Reduce spending on maintenance of equipment and refurbishment of buildings
