1st Bac -Basic Profit and Loss Statement

Basic Profit and Loss Statement

Another instance that takes part of the final step is the generation of the profit and loss statement. In which it shows the profit or loss generated by the entrepreneurship according to income, cost and expenses.

 

Characteristics of the Profit and Loss Statement

The profit and loss statement is a financial report that summarizes, only for a period of time called accounting period (month, trimester, semester or year). The accounts of income, costs and expenses that make part of this statement; at the end of the accounting period are emptied and at the beginning they will start at zero. In the case of the balance sheet, it does not restart.

 

Importance of the Profit and Loss Statement

When the entrepreneur needs to know the value of the profit or loss that the project is generating. Also known as the result balance, it is the addition and subtraction of incomes, costs and expenses. It is important for the entrepreneur to know the development of sales overtime and the variation in costs and expenses.

 

Process of Elaborating a Profit and Loss Statement

We will look at some information from a bakery in order to elaborate a profit and loss statement.

Sales (Income):

-       Sales for the month                                        $7200

-       Cost of production for the month                  $2520

-       Administrative expenses and of sale              $2880

-       Financial expenses for the month                  $60

-       Profit or Loss for the month                           $1740 (incomes - costs and expenses)

1. Which statement is the first component of the financial statements?*

a) Balance Sheet b) Cash flow statement c) Income Statement d) Statement of Changes in Equity e) None of the above

2. The income statement is also known as the __________?*

a) Profit and Loss Statement b) Statement of Basic Income c) Net Income and Expense Statement d) Cash Flow Statement e) None of the above

3. The income statement's primary purpose is to show the __________ of a business.*

a) financial position b) financial performance c) cash position d) expenses e) None of the above

4. The income statement is drawn up from the figures in the __________.*

a) Debtors ledger b) Creditors Ledger c) Cash Flow Statement d) Trial Balance e) None of the above.

5. Which of the following statements are true?*

a) An income statement usually covers a full year. b) The income statement may be drawn up for shorter periods, such as one month or three months. c) These shorter periods are used by managers to make internal business decisions. d) The period of time that is covered by the income statement (and other financial statements) is called the accounting period. e) All of the above.

6. A business has $250,000 income and $60,000 expenses. What is the net profit?*

a) $310,000 b) $250,000 c) $160,000 d) $190,000 e) None of the above.

Questions 7-10 below relate to the income statement for a trading business. 7. Which of the following statements are true?*

a) The first section of the income statement for a trading business shows the buying and selling of goods. b) The first section of the income statement for a trading business shows net profit. c) The first section of the income statement for a trading business shows the tax expense. d) None of the above.

8. Which of the following statements are true?*

a) Cost of goods sold is also known as cost of sales. b) Cost of goods sold is the direct costs of the inventory that we have sold during the year. c) Cost of goods sold is an expense charged against sales to work out a gross profit. d) None of the above. e) All of the above.

XYZ Inc. had the following figures in its income statement: Sales $920,000 Cost of Goods Sold $320,000 Gross Profit ________ Other Income $50,000 Salaries $220,000 Advertising $100,000 Rent $80,000 Other Expenses $50,000 Net Profit _________ 9. The gross profit figure is:*

a) $920,000 b) $970,000 c) $600,000 d) $500,000

10. The net profit figure is:*

a) $650,000 b) $150,000 c) $600,000 d) $200,000