Balance Sheet And Income Statement Flashcards
What is income statement
Formal document comparing revenue to costs allowing to identify whether a business has made a profit or a loss
How to calculate gross profit
Total revenue - cost of sales
What are expenses/overheads
Fixed costs = things you HAVE to pay
How to work out operating profit
Gross profit - expenses
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Why is grosss profit the most important item on income statement
It details how much was sold day to day and the costs = whether business is making profit or not
What are other revenues/ expenses
Tax/ finance costs
Equation for profit for the year
Operating profit - other expenses
3 purposes of income statement
- see if business is proftitable or not
- how efficita business is turning revenue into profit
- judge whether an organisation is investing for long term profitability (new assets/ using retained profits)
What is a balance sheet
Financial document showing net worth of a business at a given point which balances its assets (owns) and liabilities (owes)
What is non current assets and current assets
NCA = what is used to generate income for over a year CA = turned into cash within a year
What is current and non current liabilities
NCL = debts paid in over a year (mortgage, bank loan) CL = debts paid within a year (FC)
3 purposes of the balance sheet
- identify possibke liquidity problems
- judge risk of investing or lending money to a business
- shows the businesses worth
