7115 · 5.3
Income statements flashcards
Revision flashcards for Cambridge 7115 Income statements (syllabus 5.3). Flip, recall, then mark a real past-paper question.
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What does the statement of profit or loss show?
Income and expenses over a period, leading to profit or loss for the year.
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Gross profit formula?
Revenue − Cost of sales.
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Operating profit?
Gross profit minus operating expenses (overheads such as admin, marketing, wages not in COGS).
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Profit for the year?
Operating profit ± finance items − tax (final bottom line for shareholders).
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Cost of sales includes?
Direct costs of producing goods sold: materials, direct labour, production overheads tied to output.
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Why compare year-on-year?
Identifies growth, margin pressure, cost control, and trends for ratio analysis (10.2).
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Revenue vs cash received?
Revenue recognised when earned (accruals); may differ from cash if credit sales used.
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Link to 10.2 ratios?
Profitability ratios (GPM, OPM, ROCE) use figures from this statement.
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What is the formula for Gross Profit?
Revenue - Cost of Sales
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Define 'Cost of Sales'.
The direct costs attributable to the production or purchase of the goods sold by a company. Examples include raw materials and inventory purchase costs.
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What is the formula for Operating Profit?
Gross Profit - Operating Expenses (Overheads)
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What does Operating Profit measure?
The profitability of a business's core, day-to-day operations before accounting for interest and tax. It shows how efficiently the business is run.
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What are the two main destinations for 'Profit for the Year'?
1. Distributed to shareholders as dividends. 2. Reinvested into the business as retained profit.