Income Statement

Question 1

what accounting question is answered by the income statement

Answer 1

what return is the organisation making

Question 2

what does plc stand for

Answer 2

public limited company

Question 3

what does the public mean in plc

Answer 3

shares are sold on the stock market to the public

Question 4

what does the limited mean in plc

Answer 4

shareholders have limited liability, they can only lose what they have invested, receiving share of the profit with no risk of personal loss

Question 5

what does the year number mean in the title

Answer 5

the income statement only shows items relevant to that year

Question 5

what does the income statement show

Answer 5

incomes and expenses, profit or loss over a period of account (usually one year)

Question 5

what four profits are listed on the income statement

Answer 5

gross profit, operating profit, profit before tax, profit for the period

Question 6

what is revenue recognition

Answer 6

a point in time when a sale can be shown in the income statement. sales can be recorded even if no cash has been received

Question 6

what is revenue

Answer 6

amount to be received in return for supply of goods or services in current year

Question 7

when can revenue be recognised

Answer 7

1. ownership and control transferred
2. revenue can be measured reliably
3. customer recognises liability and willingness to pay

Question 8

what is cost of sales

Answer 8

cost of the goods or services sold to generate the revenue

Question 9

cost of sales in retail business

Answer 9

amount paid for the goods sold
opening stock + purchases (of stock) - closing stock

Question 10

cost of sales in manufacturing business

Answer 10

actual cost of producing product sold
materials + production wages + factory costs

Question 11

cost of sales in service business

Answer 11

actual costs of providing the service

Question 12

what is gross profit

Answer 12

have the goods and services been sold for more than they cost to provide
revenue - cost of sales
this is the first profit before any other expenses

Question 13

what are the four expenses listed on the income statement

Answer 13

distribution costs, administrative expenses, other expenses, total operating expenses

Question 14

what is an expense

Answer 14

any cost not included in cost of sales

Question 15

what is the accruals concept

Answer 15

revenue and expenses recorded in the period they are earned or incurred, regardless of cash payments

Question 16

what are accruals

Answer 16

unpaid owing charged (add)

Question 17

what are prepayments

Answer 17

paid in advance (deduct)

Question 18

what is operating profit

Answer 18

amount of money a company makes from its core business activities, after deducting all the expenses related to running the business
gross profit - total operating expenses

Question 19

what is another term for operating profit

Answer 19

profit before interest and tax

Question 20

what is important about the operating proft

Answer 20

it is the profit which operational managers can have day to day control over

Question 21

what are net finance costs

Answer 21

interest payable (on bank loans and borrowings) - interest receivable (on bank deposits and investments)

Question 22

what is taxation

Answer 22

companies pay corporation tax on profits. it is complex and involves many adjustments which are discussed with HM revenue and customs

Question 23

what is profit for the period

Answer 23

profit a business earns after deducting all expenses, interest and tax
profit available to owner/shareholder
gross profit - operating expenses - interest - tax