The Income Statement Flashcards
What is the Income Statement?
Shows the income and expenses. And hence profit and loss for the year or period. How Profit (loss) is generated,
What is displaying expenses by nature mean?
The income statement will show each expense based on its nature, materials, staff, depreciation etc. As opposed to listing it by function.
What does it mean to display expenses by function?
The statement will show expenses in a section depending on the function. Marketing, admin, selling and distribution. So all marketing employee costs will be in marketing and so forth. Difficult as you could have staff working across different departments etc.
Why separate profit from discontinued operations?
The IFRS requires you to do so. It will come after the net profit for the year. Will make it easier for the analyst to make a forecast.
What is the matching principle?
The accounting principal of matching revenue to expenditure.
What will happen to retained profits from the income statement?
It will show up under shareholders funds on the balance sheet
What is COGS?
Cost of Goods Sold, specifically the cost in that year so look at incoming and outgoing inventory.
Does not include Distribution or Sales Force costs.
How do you factor inventory to COGS?
Need to focus on the cost of goods sold in the time period only, so add inventory from start of the year to the cost of materials/production. Then subtract what’s left over at the end of the period.
What makes up Inventory?
Raw Materials, Work In Progress and Finished Goods.
Can you show depreciation on Intangible Assets?
Yes, harder to do with things such as a brand etc but easier on fixed term patents. Called Amortisation
What are Exceptional items? Income/Costs
Things that are a 1 off during the period. Can show profit before exceptional items to look good.
Where is Gross Profit Shown?
On an Income by function sheet, basically Revenue -COGS. You wont see this on a sheet listed by nature.
What is EBIT?
Earnings before interest and tax. basically the operating profit, so gross - operating expenses, staff, utilities, etc.
What happens after EBIT?
Subtract/add interest on loans or investments to get pre tax profit.
What is Profit Before Taxes from Continuing Operations?
Not on all Income Statements but basically EBIT +/- Interest and financing. Pre tax profit.
