Financial Documents (Edexcel IGCSE Business): Flashcards
Exam code: 4BS1
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Define the statement of comprehensive income.
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Define the statement of comprehensive income.
The statement of comprehensive income records a business's income and costs over a period (usually one year); also called the profit-and-loss account.
What two types of profit are calculated in the statement of comprehensive income?
Gross profit and operating profit.
What is the formula for gross profit?
Gross profit = revenue − cost of sales.
Define cost of sales.
Cost of sales is the cost of raw materials and labour used in producing or buying the goods actually sold.
What is the formula for operating profit?
Operating profit = gross profit − expenses.
Expenses are costs that are not directly related to producing goods or buying for sale.
Expenses are costs that are not directly related to producing goods or buying stock for sale.
If revenue is $274,000 and cost of sales is $169,000, what is the gross profit?
$274,000 − $169,000 = $105,000.
If gross profit is $105,000 and expenses are $48,000, what is the operating profit?
$105,000 − $48,000 = $57,000.
The statement of comprehensive income is also known as the account.
The statement of comprehensive income is also known as the profit-and-loss account.
True or False?
A statement of comprehensive income shows revenue, costs and profit over a period of time.
True.
It records income and costs over a period (usually a year), enabling year-on-year comparison.
Why might a business's cost of sales increase from one year to the next?
Suppliers increasing prices, buying better-quality supplies, or increased wastage.
True or False?
If cost of sales rises but revenue stays similar, gross profit will fall.
True.
A higher cost of sales reduces gross profit if revenue doesn't rise to match.
Why do finance managers analyse the statement of comprehensive income?
To compare performance over time (and vs competitors) and make changes or set new strategic objectives.
Define the statement of financial position.
The statement of financial position shows the financial structure of a business at a specific point in time — its assets, liabilities and capital; also called the balance sheet.
The statement of financial position is also known as the sheet.
The statement of financial position is also known as the balance sheet.
Define an asset.
An asset is an item that is owned by a business.
Define a liability.
A liability is an item that is owed by a business.
What is the difference between a non-current asset and a current asset?
Non-current assets are owned for the long term (e.g. buildings, machinery); current assets can be turned into cash within 12 months (e.g. cash, inventory).
Name the four types of current asset.
Cash in hand, cash in bank, trade receivables, and inventory.
Short-term debts a business must usually repay within a year are called liabilities.
Short-term debts a business must usually repay within a year are called current liabilities.
Give an example of a non-current liability.
A long-term loan or a mortgage.
True or False?
Assets are items a business owes, and liabilities are items it owns.
False.
Assets are items a business owns; liabilities are items it owes.
Give an example of a current liability.
Trade payables or a bank overdraft.
True or False?
On the statement of financial position, net assets are equal to total equity.
True.
It is called the balance sheet because net assets = total equity.
What might a high level of gearing (loans compared with share capital) suggest about a business?
It may be seen as a lending risk, so future loan applications could be declined.
A statement of financial position shows how a business finances its activities, what it owns, and what it .
A statement of financial position shows how a business finances its activities, what it owns, and what it owes.
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