financial statements Flashcards
(10 cards)
1
Q
what does an income statement do?
A
shows the business’ financial performance over a given time period
2
Q
what is sales revenue?
A
amount of money received for selling goods or services
3
Q
what is gross profit?
A
profit made from buying and selling goods
4
Q
how is gross profit calculated?
A
by deducting cost of sales from sales revenue
5
Q
what is profit for the year?
A
profit made after all other operating expenses have been deducted from the gross profit
6
Q
what are four purposes of an income statement?
A
- shows the profit/loss made by the company from the buying and selling of goods
- can be used to compare gross profit and profit for the year over different years of trading to identify any trends and to aid decision making
- comparisons can be made with similar companies in the same industry
- can be used to compare expenses and sales over the years or between department to see if there are any areas where they can be minimised or improved
7
Q
what does a statement of financial position do?
A
shows the value of a business on a particular date
8
Q
what are assets?
A
what the business owns
9
Q
what are liabilities?
A
what the business owes
10
Q
what are five purposes of a financial statement?
A
- shows the overall value of the business. It is a legal requirement for all limited companies to prepare a statement of financial position
- Investors and potential investors can use a statement of financial position to determine whether they will get a good return on their investment.
- Suppliers and creditors can use it to determine the level of risk involved in lending or supplying to the business
- can be used to analyse ratios which can be compared with previous years or those of competitors. This will better aid future decision-making
- can be used to show the value of all current assets, non-current assets, liabilities and non-current liabilities
