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Unit 29
Statement of comprehensive income
1. The purpose of a statement of comprehensive income
# - Statement of comprehensive income : Financial document showing a firms income
and expenditure in a particular time period.
# - Profit : money left over after all costs have been subtracted from revenue
# - Gross profit : Sales revenue less cost of sales
# - Operating profit : gross profit less expenses
2. Retained and distributed profit
# - Distributed profit : profit that is returned to the owners of a business
# -Retained profit : Profit held by a business rather than returning it to the owners and
which may be used in the future
# - Dividend : share of the profit paid to shareholders in a company 3. The statement of comprehensive income
: The statement of comprehensive income shows the income and expenses of a business
during the financial year.
Revenue : is the money the business receives from selling goods and services.
Cost of sales
: For a manufacturer, cost of sales would include costs such as raw materials and the
wages of factory workers.
: For retailer, cost of sales would be the cost of buying inventory
Gross profit : is calculated when the cost of sales is subtracted from the revenue
Administrative expenses : general overheads or expenses of the business. Eg. Office
salary, stationary supplies.
Other operating expense : Any expenses not included in administrative expenses above
may be called other operating expenses. Eg. Office supplies, postage etc.
Selling expense : A business may incur a range of expenses that are directly related to
the selling of its products. Eg. Sales commissions, advertising.
Operating profit : Gross profit - operating expense - administrative expense
Finance cost : If a business borrows money it will have to pay interest to the lender.
Profit for the year : If the cost of finance is subtracted from the operating profit, the
profit for the year is determined. This is the profit before taxation.
Profit for the year after tax : Profit for the year -tax 4. How might the statement of comprehensive income be used in decision making
4.1 Investment decision
: A business might use the statement of comprehensive income to decide how much
money to invest to the business.
4.2 Cost analysis
: The statement of comprehensive income will show what has happened to costs during
the year.
4.3 Basis for future forecasts
: Businesses can therefore use the statement of comprehensive income as a basis on
which to make forecasts,,
4.4 Making comparison
: Investors may use the statement of comprehensive income when deciding where to
invest their funds.
5. The nature and importance of profit
: Normal profit - minimum profit a business to make to retain the interest of the owners
: Profit is also important as measure of business performance.