Income Statement Flashcards
(24 cards)
Profit =
Income - Expenses
Assets =
Equity + Profit + Liabilities
Equity + (Sales revenue-expenses) + Liabilities
Income statement concerned with
the flow of wealth over a period of time
Sales revenue - cost of sales =
Gross profit
Gross profit - operating expenses =
Operating profit
Operating profit - interest payable + interest receivable =
Profit for the period
Gross profit =
Sales revenue - cost of sales
Operating profit =
Gross profit - operating expenses
Profit for the period =
Operating profit - interest payable + interest receivable
What is the matching principle?
Expenses should be matched to the revenue that they helped to generate
e.g. truck depreciated over years included in income statement as expenses
Accurals
States that all income and expenses incurred in an accounting period should be recognized in that accounting period
Profit is not
CASH
Cost of goods sold/sales =
Opening inventory + purchases – closing inventory
Sales Revenue/ turnover is the
Trading income arising from services provided and/or goods sold during a period of time
Operating expenses
Transport Advertising and retail expenses Rent Depreciation Salaries and Wages Other administrative expenses
Interest Payables (finance expense)
Interest paid on funds used to finance he operations of the business
Interest receivable (finance income):
Show on a separate line after total expenses
Profit before tax =
Operating profit + finance income – finance expense
Profit for the Year
Profit before tax – income tax expense
What is depreciation?
Portion of the cost of non-current assets used in generating revenue during a particular period
e.g. non-current assets have limited lives. They are used up in the process of generating revenues for the business. This “using up” refers to physical deterioration (e.g. motor vehicle)
What is amortisation?
Depreciation of intangible assets
Important factors in Calculating the depreciation expense:
The cost (or fair value) of the asset
The useful life of the asset
Residual value (disposal value)
Depreciation methods
Straight-line method of depreciation
Cost-estimated residual value/ estimated useful life
Reducing balance method of depreciation
Charges depreciation as a percentage of an asset’s book value
% each year
