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Income statements - Coggle Diagram
Income statements
Main features
Gross profit
Revenue - cost of sales
Profit
Profit after deducting all expenses
Cost of sales
how much did the material + wages cost
Retained profit
Profit invested back to business
Profit after all payments are deducted
Revenue
how much the business mad from sales
Importance of Profit to Private Sector Businesses
Reasons
Reward for risk taking
providing capital is risky (lose money)
incentives to make business more profitable
Source of finance
allows for expansion
Reward for enterprise
entrepreneurs have important qualities
profit rewards these
Indicator of success
business is successful = investment/producing similar things are profitable
losses = don't do that industry
Public sector
government sets profit goals
finance to keep business
finance to make business more efficient
social enterprises
can not survive without surplus
profit isn't their only target
balanced profit and other aims
Profit vs Cash
Lots of profit doesn't mean lots of cash
Profit = revenue after subtracted from all the expense
Profit includes credit, cash flow does not
Using Income Statements in Decision Making
profit based calculations
managers can make forecasted income statements
make decisions based on it
Analysing
looking at the expenses, cost and revenue
see what would help increase profit
How profit is made (NB)