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Accounting 1 > Statement of Profit or Loss > Flashcards

Statement of Profit or Loss Flashcards

1
Q

what does the statement of profit ot loss show

A

an entities incomes and expenditure for the whole financial year

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2
Q

define income

A

thr revenue earned during the financial year

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3
Q

define expenditure

A

the expenses incurred during the financial year

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4
Q

what can sopl also be called

A

consolidated income statement

the profit and loss account

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5
Q

define revenue

A

income made from sales made in ordinary course of business

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6
Q

what is gross profit

A

revenue - cost of sales

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7
Q

what is operating profit

A

gross profit - distribution and selling costs - administration expenses

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8
Q

what is profit before tax

A

operating profit + finance income - finance expense

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9
Q

what is finance expense

A

interest payable eg on loans

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10
Q

what is finance income

A

interest receivable eg on loans given out, dividends from other companies

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11
Q

how to calculate profit for the year

A

profit before tax - income tax

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12
Q

what are examples of operating expenses

A

distribution and selling costs

admin costs

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13
Q

if the gross profit is much larger than the operating ptofit what might the business look into

A

reducing their operating costs

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14
Q

define income

A

increases in assets or decreases in liabilities that result in an increase in equity

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15
Q

if cash increases by 100 euros from a sale is this an income

A

yes as assets will increase and equity will increase by profit made

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16
Q

if trade receivables increases by 100 euro frpm a sale made on credit is this an income

A

yes as assets will increase and equity will increase by profit made

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17
Q

if a loan of 100 euro is taken out does this count as income

A

no as assets increases but liabilities also does

no change on equity

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18
Q

define expense

A

decrease in assets or increase in liabilities that result in a decrease in equty

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19
Q

why is a new loan not considered an expense

A

no impact on equity

increased liabilities and increased assets only

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20
Q

is paying a trade payable expenditure

A

decrease in assets and decrease in liabilities but no change on equity

so no

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21
Q

are dividends an expense

A

distribution of equity

not in normal course of business. so no

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22
Q

what is revenue also referred to as

A

sales or turnover

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23
Q

other sources of income than revenue

A

finance income

profits on the sale of non current assets

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24
Q

types of expenditure

A

cost of sales
distribution and selling costs
administration costs

finance expenses
income tax
losses on the sale of non current assets

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25
Q

what is included in the distribution and selling costs

A

transport
advertising
retail expenses

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26
Q

what is included in the admin costs

A

salaries and wages
telephone bills
rent
insurance

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27
Q

how to calculate cost of sales for the year

A

opening inventory + purchases during accounting period - closing inventory

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28
Q

what is opening inventory

A

stock in warehouse on the first day of the year

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29
Q

what is closing inventory

A

the stock in the warehpouse on the last day of the yeat

30
Q

what does this year’s closing inventory become

A

next years opening inventory

31
Q

what is the final profit (profit for the year) used for

A

distribute to shareholders as dividends or retain within the business for future expansions

32
Q

what is the accruals basis of accounting

A

that all income earned in an accounting period is recognized in that accounting period

33
Q

what is the reasons for accruals basis of accounting

A

financial performance isnt subject to maniuplation, and is faithfully represented

34
Q

are prepayments assets or liabilities

A

assets

35
Q

why are pre payments assets

A
  • arise from past events
  • are a present economic resource controlled by then entity
  • have the potential to produce economic benefits
36
Q

are pre payments current or non current assets

A

current

37
Q

how to calculate pre payments on income statement

A

add prepayment at start pf the year

add payments made during the year

deduct prepayment at end of the year

38
Q

what is a pre payment

A

expenses paid in advance of the accounting period to which they relate

39
Q

define accrual

A

expenses incurred for goods and services which have been received but not paid for by the year end date

40
Q

are accruals assets or liabilities

A

liabilities

41
Q

why are accruals liabilities

A

arise from past events

are a present obligation of the entity

will result in a transfer of economic resource

42
Q

under what heading do accruals come

A

trade and other payabales

43
Q

are accruals current or non current liabilities

A

current

44
Q

how to calculate accruals on income statement

A

deduct accrual at the start of the year

add payments made during the year

add accrual at the end of the year

45
Q

is depreciation an income or expense

A

expense

46
Q

are both intangible and tangible assets depreciated

A

yes

tangible - depreciated

intangible - amortised

47
Q

is land depreciable

A

no

48
Q

define depreciation

A

an annual expense which progressively reduces the cost of a non-current asset in the statement of financial position

49
Q

four factors to be considered when calculating depreciation charge of an asset

A

the cost (or fair value) of the asset

the useful life of the asset

residual value(disposal value)

depreciation methods

50
Q

what does cost of the asset include

A

cost of acquiring the asset

delivery costs

instillation costs

alteration costs

51
Q

what is the useful life of the asset

A

how long we expect the asset to last and be useful

52
Q

what is the residual value

A

the money we would get when selling the asset at the end of its useful life

53
Q

what are the two methods of depreciation

A

straight line

reducing balance

54
Q

what is straight line depreciation

A

an equal amount of depreciation allocated to each year of a non current assest’s useful life

55
Q

calcualtion for yearly straight line depreciation of a non current asset

A

(cost-residual value)/number of years of useful life

56
Q

calculations for fixed rate reducing balance depreciation

A

year 1: cost x fixed%

years after: carrying amount x fixed%

57
Q

when do businesses estimate the residual value of a non current asset

A

at the date of aquisition

58
Q

what happens if a non current asset is sold for more than its residual value on disposal

A

record a profit in the income statement

59
Q

what happens if a non current asset is sold for less than its residual value on disposal

A

RECORD a loss in the income statemnt

60
Q

what are bad debts/irrecoverable debts

A

some customers will not pay or will be unable to pay back for goods received. These non payments are known as bad debts

61
Q

where are bad debts deducted from

A

trade receivables

62
Q

where do bad debts get added to

A

bad debt expense

63
Q

what are allowances for receivables aka doubtful debt

A

trade receivables that may not be collected rather than definitely not

64
Q

why might goods be returned by customers

A

unsuitable
not what they ordered
are not of the required quality
faulty

65
Q

how to treat sales returns in accountign

A

deduct sales returns from sales (revenue)

deduct trade receivables

66
Q

how to treat purchase returns in accounting

A

deduct from cost of sales

deduct from trade payables

67
Q

examples of things that might be pre paid

A

insurance premiums, utilities eg light and heat

68
Q

why do we record depreciation

A

as we will benefit from that asset and need to account for that against income generated

69
Q

example of an asset that may follow straight line depreciation

A

buildings

70
Q

example of an asset that may follow reducing balance depreciation

A

machinary

71
Q

leftover allowances for trade receivables last year are treated as what for this year

A

profit

Accounting 1 (10 decks)

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