5.3 – Income Statements
Cards (19)
- Accounts: the financial records of a business's transaction
- Accountants: professionally qualified people who have responsibility for keeping accurate accounts and for producing final accounts
- Final accounts: produced at the end of the financial year and give details of the profit or loss made over the year and the worth of the business
- Income statement: a financial statement that records the income of a business and all costs incurred to earn that income over a period of time
- Revenue: the income to a business during a period of time from the sale of goods or services
- Costs of sales: the cost of producing or buying in goods actually sold by the business during a time period
- Gross profit: a gross profit is made when revenue is greater than the cost of sales
- Trading account: show how the gross profit is caculated
- Net profit: the profit made by a business after all costs have been deducted from revenue
- Depreciate: the fall in value of a non-current asset over time
- Retained profit: the net profit reinvested back into a company, after deducting tax and payment to owners
- Why profit important?
- reward entrepreneur
- reward risk taking
- source of finance
- indicator of success
- attract investors
- Gross profit = revenue - cost of sales
- Profit = gross profit - expenses
- Profit after tax = profit - tax
- Retained profit = profit after tax - dividends
- Main features:
- revenue
- cost of sales
- gross profit
- profit
- retained profit
- Used:
- judge if cost of sales has risen or fallen
- judge if expenses need reducing
- assess how much retained profit is available
- assess how much profit is available for dividend
By owners, managers, investors, government:- compare previous year to judge success
- compare with other companies to judge success
- Lack of financial records would result in:
- not knowing how much is owed by business and to whom it is owed
- the business not meeting orders (runs out of cash)
- not knowing (made profit/loss)