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Business Chapter 24: Income Statement - Coggle Diagram
Business Chapter 24: Income Statement
How profit is made
formula:
profit = revenue - cost of making products
surplus can be increased by
increasing revenue by more than costs
reducing cost of making products
both
Why profit is important to private sector businesses
reward for enterprise
reward for risk taking
source of finance
indicator of success
Difference between profit and cash
just because a business records a profit does not mean it has plenty of cash
Things to consider
things to consider when business makes profit
is it higher or lower than last year?
if lower, why is profit falling?
is it higher or lower than other similar businesses?
if lower, what can we do to become as profitable as other businesses?
things to consider when business makes loss
is this short or long term problem?
are other similar businesses also making losses?
what decisions can we take to turn losses into profits?
Features of income statement
revenue
total sales
cost of sales
variable cost of production for the goods or service sold
gross profit
revenue less gross profit
net profit
gross profit less expenses
depreciation: fall in the value of fixed asset over time
also contains
coorporation tax paid on company's net profits
dividends paid out to shareholders
retained profitds left after deductions
results from previous year to allow easy comparisons
Retained profit
profit left or reinvested back into the business after payments are deducted