Accounting

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what does the income statement measure
the amount of profit generated over a period
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how do we calculate profit/loss for the period
total revenue for the period - total expenses incurred in generating that revenue
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what is the first thing we calculate in the income statement and how do we do it
gross profit, which is the sales revenue minus the cost of sales
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how do we calculate operating profit
gross profit - operating costs (fixed costs)
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how do we then calculate profit for the period
operating profit + interest received - interest payable
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when should revenue be recognized
once the ownership and control of the goods have passed to the customer and as soon as the amount can be recognised reliably and it is probable that the economic benefits will be received
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how should we recognise revenue for a long term contract
the contract will be broken into stages and the revenue for each stage recognised once the stage is complete
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how do we recognise revenue for continuous services when we cant break it into stages
we recognise the revenue after the service is completed
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what does the matching convention mean
expenses associated with a particular revenue should be recognised in the same period as the revenue
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what is the difference between profit and liquidity
profit is a measure of productive effort and liquidity is a measure of cash in the business
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what is the accruals convention
it means that profit is the excess of revenue over expenses for the period
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what is depreciation
the attempt to measure the portion of the value of a non-current asset that has been depleted by generating revenue
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what are the four factors needed to be considered when calculating depreciation
the cost of the asset, the assets useful life, the depreciation method and the residual value of the asset
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what are the two methods of calculating depreciation
the straight line method and the reducing balance method
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how do we use the straight line method
the amount to be depreciated is allocated evenely over the useful life of the asset
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how do we use the reducing balance method
a fixed percentage rate of depreciation is applied to the carrying amount of the asset each year
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how do we deal with a bad debt
the trade receivable is written off and the amount becomes an expense
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how do we deal with a doubtful debt
an allowance for the trade receivables will be shown as an expense in the income statement and removed from the total trade receivables in the statement of FP
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Card 2

Front

how do we calculate profit/loss for the period

Back

total revenue for the period - total expenses incurred in generating that revenue

Card 3

Front

what is the first thing we calculate in the income statement and how do we do it

Back

Preview of the front of card 3

Card 4

Front

how do we calculate operating profit

Back

Preview of the front of card 4

Card 5

Front

how do we then calculate profit for the period

Back

Preview of the front of card 5
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