7.2b Income Statements Flashcards
What does an income statement show?
The profit and loss made by a business
What is the purpose of an income statement?
- To review progress
- To show shareholders
- To meet legal requirements
Income statement order
- Revenue
- Cost of sales
- Gross profit
- Expenses
- Exceptional items
- Operating profit
- Finance income and finance costs
- Tax paid on profits
What tax do PLC’s pay?
Corporation tax
What tax do sole traders pay?
Income tax
Cost of sales definition
The costs linked directly to providing the good or service
Expenses definition
All other costs not directly incurred in providing the good
Exceptional items definition
Anything that has a one-off effect on profit
Operating profit definition
Income after all running expenses of company
What do revenue and costs of sales allow for the business?
To see how efficiently it is turning materials into sales revenue
What does high gross profit suggest?
- Cost of sales are being kept low
- Business is achieving a high value added
What does finance income and finance cost give indication of?
How much the business borrows and lends money
What is profit for the year often called?
Earnings
What do earnings per share show?
How much profit has been made for each share held in the company
Gross profit formula
Gross profit = revenue - cost of sales
