Week 2 - Income Statement

Question 1

What is the main objective of a commercial entity?

Answer 1

Create wealth for the owners

Question 2

How is wealth generated?

Answer 2

By creating profit through the successful trading activities of a business

Question 3

What is the income statement often referred to as?

Answer 3

The profit and loss account

Question 4

What does an income statement report on?

Answer 4

The profitability of a business over a set period of time, usually 12 months, and states how much wealth has been generated by the business

Question 5

What does the income statement provide a link between?

Answer 5

The owner’s equity at the start of the accounting period and at the end

Question 6

How is profit calculated?

Answer 6

By recording all the revenue earned minus the total expenses incurred

Question 7

What are the three common measurement points for profit in the income statement?

Answer 7

Gross profit, operating profit, and net profit

Question 8

What are the three common measurement points for profit used to measure?

Answer 8

How effective the management are at running the business

Question 9

What does the income statement tell us?

Answer 9

What wealth was generated and how