Week 6 - Preparation of Financial Statements Flashcards
What is an Income Statement?
o Highlights how much profits/losses a business has made over a certain period
o A financial statement that reports a business’s financial performance over a specific accounting period.
What is the income statement equation?
o PROFIT/LOSS (NET INCOME) = REVENUES – EXPENSES
What is the income statement format
o Columns do not refer to debits and credits but instead are only present for looks
What is the formula for gross profit?
o SALES REVENUE – COST OF GOODS SOLD (COGS) = GROSS PROFIT
What is net income
o Net income is the calculation that reflects the profitability of a business after all expenses are; “matched” with revenue for the period.
What is the equation for net income/profit
o GROSS PROFIT – ALL EXPENSES = NET PROFIT
Explain the classification for an income statement expenses: Selling
o Selling Expenses: directly related to the sale of the good
Explain the classification for an income statement expenses: Admininstrative
o Administrative Expenses: business has to pay; but not directly related to the sale e.g office supplies
Explain the classification for an income statement expenses: Finance
Purely is going to relate to interest
What is a statement of fianncial position also known as
Balance sheet
What is a balance sheet?
o A balance sheet is a financial statement that summarises a business’s financial position at a specific point in time
o Provides a snapshot as to the company’s assets on balance day.
Explain current assets
o Resources the business expects to convert into cash, sell or use up within one year
o Future benefits of current assets provide the resources (usually cash) for the business to maintain operations
What are examples of current assets?
cash, inventory, accounts receivable
What are non-current assets
o Non- current assets are resources that the business expects will have a useful life greater than one year.
o They are sometimes referred to as fixed assets
o Are “depreciated” (converted to expenses) over their “useful life”
o Are listed at their book values
Is depreciation a current or non- current asset?
Non- current asset
