Income statements/ budgets

Question 1

What are INCOME STATEMENTS?

Answer 1

shows revenue and costs for a past trading period; usually 12 months. shows the trading position of the business, one-off profit or losses, the corporation tax payable and dividens

Question 2

Benefits from producing an INCOME STATEMENT

Answer 2

+ managers can review progress and judge performance
+ shareholders can assess their investment
+ conforms to legal requirements
+ used to attract furthur investment
+ profit quality can be judged

Question 3

What is PROFIT MOTIVE?

Answer 3

Making profit is a key objective as its most important for working capital/ reinvesting for the future. Also a reward

Question 4

What is PROFIT QUALITY/

Answer 4

Measure of whether profit is sustainable in the long run. Profit of HIGH quality tends to arise from successful trading activities. Profit of LOW quality is a one-off occurrence which is unlikely to continue

Question 5

What is PROFIT UTALISATION?

Answer 5

reward its owners/ shareholders through dividens
business reinvests its profits

Question 6

Drawbacks of trying to improve profits

Answer 6

1) making staff redundant
2) reducing employee wages
3) moving to a cheaper location
4) changing to a cheaper supllier

Question 7

What are BUDGETS?

Answer 7

forecasts or plans for the future finances of the business

Question 8

What are INCOME BUDGETS?

Answer 8

A target set for the amount of revenue to be achieved in a set time period

Question 9

What are EXPENDITURE BUDGETS?

Answer 9

a limit placed on the amount to be spent in a given period of time

Question 10

What are PROFIT BUDGETS

Answer 10

A target set for the surplus between income and expenditure in a given period of time

Question 11

Problems with BUDGETS

Answer 11

~dependent upon predictions
~costs are subject to change
~actions of competitors are unknown
~managers may lack experience
~may be subject to bias
~opportunity cost as it takes time