Income Statement

Question 1

What are FINAL ACCOUNTS?

Answer 1

The main reason why people set up businesses is to make money. However, if they are not successful they may well incur losses instead. The calculation of profit (or loss) is probably the most important objective of accounting. Once per year, the sole trader will wish to prepare a set of final accounts. Final accounts consist of:

Income Statement
Statement of Financial Position

Question 2

How many columns does and income statement have?

Answer 2

4
One for the list of Income and Expenditure
One for the Working
One for the Sub Total
One for the Total

Question 3

Is it important to include a Title in your Income statement?

Answer 3

Yes

Question 4

What should be included in the Income Statement Title?

Answer 4

The words Income Statement.
Who the Income Statement is for.
The year end.

Question 5

What is the first item to appear in the Income Statement?

Answer 5

Sales Revenue

Question 6

What is the second item to appear in the Income Statement?

Answer 6

Less Sales Returns

Question 7

What title would you use to describe the total sales?

Answer 7

Net Sales

Question 8

Which column in the Income Statement will sales appear in?

Answer 8

The last column

Question 9

What is the heading of the next section of the Income Statement?

Answer 9

Less Cost of Sales

Question 10

Which inventory record goes first - Opening or closing inventory?

Answer 10

Opening

Question 11

Which column will the opening inventory be placed in?

Answer 11

The second column

Question 12

List 3 other items that will appear in the cost of sales section of the Income Statement?

Answer 12

Carriage In, Purchase Returns, Closing Inventory

Question 13

Where will purchases go in the Income Statement?

Answer 13

Under Cost of Sales

Question 14

Would you Add Carriage In under Purchases?

Answer 14

Yes

Question 15

Should you add Purchases and carriage in together?

Answer 15

Yes

Question 16

Should Purchase Returns be added or taken away?

Answer 16

Less Purchase Returns

Question 17

What comes after the Purchase Returns, if there are any?

Answer 17

Closing Inventory

Question 18

Should the closing inventory be taken away?

Answer 18

Yes

Question 19

How is the Gross Profit Calculated?

Answer 19

By subtracting total purchases from total sales.

Question 20

After the Gross Profit, what is the next section of the Income Statement?

Answer 20

Gross Profit

Question 21

List 3 items that can be included in the Expenses section of the Income Statement?

Answer 21

Electricity, Advertising, Carriage Out, Wages, Telephone - there are more.

Question 22

What is a prepayment?

Answer 22

An expense that has been prepaid for example Electricity may have been paid for 1 month in advance i.e. the electricity has not yet been used.

Question 23

How should you show a prepayment in the income statement?

Answer 23

Subtract it from the total expense. ie If electricity has been prepaid by £300, you would subtract this from the total expense.
Total Electricity: £5000
Prepayment: £300
Expenses: £4700

Question 24

Where should a prepayment appear?

Answer 24

In the current asset section of the Statement of Financial Position