finance and acc - income statement

marketing modulke

what are the main components

revenue (income) ,expenses

proft/loss formula

revenue - expenses

Revenue

sales of goods. fees for services, interest and subscriptions

expenses

cost of sales, selling and administration, interest and tax

why is an income statement useful

to evaluate past performance, support future forecasts, assess uncertainty of future cash flows, understand how resources were used

revenue core relationship: main income

sales of goods, fees for services,

revenue core relationship: other income

interest and subcriptions

expenses core relationship: main expenses

cost of sales

expenses core relationship: other expenses

selling and administration, interest and tax

accrual basis

revenue when earned, expenses when incurred

cash basis

revenue when cash is received, expenses when cash is paid

accrual-basis accounting

economic event → revenue earned/expense incurred → recognise in profit

cash-basis accounting

cash received → recognise revenue , and , cash paid → recognise expense

formula

sales rev - cost of sales = gross profit , gross profit - operating expenses = operating profit, operating profit ± net finance result = profit for the period

retail formula

(opening inv + purchases) - closing inventory = cost of sales

most common operating expenses

salaries and wages, rent and rates, utilities, transport costs, telephone postage, insurance

why do assets lose accounting value

wear and tear, lower resale value, obsolescence and aging, systematic allocation rather than market valuation

depreciation

when purchasing an asset its value mat well decrease over time during to factors such as wear and tear etc

two methods of depreciation?

straight line and reducing balance

straight line method equation

(cost - residual value) / useful life

reducing- balance method

apply a fixed percentage to the carrying amount brought forwards

Straight line vs reducing balance : straight line

equal charge each year, simple and predictable, suitable when benefits are consumed evenly

Straight line vs reducing balance : reducing balance

higher charge in earlier years, charge reduces over time, useful when benefits decline with age

what is a bad debt

recognised as an expense when a customer balacne cannot be collected