09 - Income Statement

Question 1

The purpose of an Income Statement is to…

Answer 1

measure and report how much profit or loss the business generated over an accounting period

Question 2

Profit equals…

Answer 2

total revenue for a period
minus
total expenses incurred in generating the revenue

Question 3

What is the primary purpose of a business?

1.
2.

Answer 3

• generation of wealth
• or profit

Question 4

Profits are measured…

Answer 4

…through the income statement

Question 5

What is the Definition of Revenue?

1.
2.
3.
4.

Answer 5

• increase in the shareholder´s equity (increase in net assets)
• measure of inflow of economic benefits from ordinary activities
• different forms of businesses have dofferent forms of revenue
• benefits are: increase in assets or decrease in liabilities

Question 6

Name examples for: Different forms of businesses have different forms of revenues

1.
2.
3.

Answer 6

1. Sales of goods | manufacturer
2. Subscriptions | club
3. Interest Received | Investment fund

Question 7

What is the definition of Exenses?

1.
2.
3.
4.
5.

Answer 7

• opposite of revenue
• it´s the outflow of economic benefits arising from ordinary activities
• it results in decrease in asset OR increase in liabiltites
• examples: cost of buying goods | salary and wages
• incurrence when generating revenues

Question 8

Comparision of Income Statement and Balance Sheet

1.
2.

Answer 8

• they are no substitutes
• however, Income Statement links the balance sheet at beginning of the year and balance sheet at end of reporting year

Question 9

What is…

1. Gross Profit?
2. Cost of Sales?

Answer 9

1. sales revenues minus cost of sales
2. matching item of sales with relevant cost of the sales

Question 10

How can Cost of Sales be identified?

1.
2.

Answer 10

1. Recording simultaneuosly each sale and the costs through point-of-sale (large retailers)
2. idenfitifcation of cost of slaes after the end of the reporting period (small retailers)

Question 11

How can Cost of Sales be derived?

1.
2.
3.
4.

Answer 11

• cost of sales = cost of goods
• sold during the period rather than the cost of goods that were bought
• part of the goods remains. as inventories, at the end of the period
• starting point for deriving the cost of sales: total goods available for resale

Question 12

Total goods available for resale = …

Answer 12

Opening inventories at beginning of year + goods bought during the year

Question 13

Revenue can be recognised according to…

1.
2.
3.

Answer 13

Fundamental Criteria 1:… it is probable that the economic benefits will be received and
Fundamental Criteria 2:… the amount of revenue can be measured reliably
additional criteria for certain categories: sales of goods: transfer of both ownership and control of the goods to the buyer

Question 14

Expenses is not cash because