on ar A. Briefly discuss the uses and usefulness of the income statement (4 mark

Question

on ar A. Briefly discuss the uses and usefulness of the income statement (4 marks) B. The following information relates to the activities H&S; Retailers for the year ended 3 1 December 2015: (21 marks) Prepare an income statement for the year ended 31 December 2015. (Hint: not all items listed should appear on this statement) Vehicle running expenses $1,400 Heat and light 7,000 Sales revenue $500 $ 90,000 $ 47,000 Motor vans-cost less depreciation-S 20,000 | Purchases Annual depreciation-motor vans $2,000Loan interest paya Insurance Balance at bank Rent payable 700 Salaries and wages 15,000 Opening inventories $ 6,000 Telephone and postage S 10 S 6,000 S 400

Explanation / Answer

Ans 1 The income statement is use to know the performance of an entity. It shows how much revenue is earned and expense incurred for the period. It also helps us to know income tax liability. It includes both operating and non operating revenue and expenses which tells us the overall profitability if an entity. Income statement also helps us to determine various ratios which again helps in knowing the performance of an entity. It is a very important financial statement for an organization. ans 2 Income statement Sales Revenue $90,000 Less: Cost of Good sold Opening Inventories 6000 Add: Purchases 47000 Less; Closing Inventories -7000 46000 Gross Profit $44,000 Less: operating Expenses Salaries & wages $10,500 Telephone & Postage 400 Heat & Light 500 Insurance 700 Annual depreciation-Motor van 2000 Motor vehicle Running expenses 1400 Total operating expenses $15,500 Net Operating Income $28,500

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