Financial Statements

What Financial Statements covers

Financial Statements is examined in Unit AS 3, Financial Decision Making. It covers revenue, cost of sales and gross profit, expenses and net profit, assets on the statement of financial position and equity and liabilities.

The 4 subtopics

Each one has its own page.

• Revenue, cost of sales and gross profitThe income statement, sales revenue and fee income, cost of sales with inventory, gross profit with worked figures, and why gross profit can fall as revenue rises.Open →
• Expenses and net profitExpenses and net profit with worked figures, net losses, drawings, depreciation, loan interest, and ways to raise net profit without higher sales.Open →
• Assets on the statement of financial positionThe statement of financial position, non-current and current assets, trade receivables, liquidity, depreciation and net book value, and what a lender looks for.Open →
• Equity and liabilitiesCurrent and non-current liabilities, trade payables, equity and the accounting equation, changes in capital, working capital with worked figures, and rising overdrafts.Open →

What you need to know

Answer each one before you reveal it.

Take Financial Statements further

The same content, four other ways.

Commonly confused

Pairs that lose marks when they are blurred together.

• Income statement vs Statement of financial position

  Income statement: a record showing revenue, costs and profit over a trading period. Statement of financial position: a snapshot showing assets, liabilities and equity on one date.

• Gross profit vs Net profit

  Gross profit: revenue minus the direct outlay on goods or services sold. Net profit: the surplus left once both direct costs and overheads are deducted from revenue.

• Current assets vs Non-current assets

  Current assets: items expected to turn into cash within twelve months. Non-current assets: items kept for more than twelve months to run the business.

Questions from this topic

Each one with the model answer underneath.

1. 1

   What is an income statement?

   Model answer

   An income statement shows a business's revenue, costs and profit or loss over a period, usually a year. The older name is the trading and profit and loss account.

2. 2

   What is sales revenue?

   Model answer

   Sales revenue is the value of the goods or services sold in the period. Revenue equals the selling price multiplied by the quantity sold.

3. 3

   How does a consultancy earn its sales revenue?

   Model answer

   A consultancy earns revenue as fees for the work it does for clients. Fee income is often the hours billed multiplied by the hourly rate.

4. 4

   A Belfast consultancy bills 2,400 hours in a year at £85 an hour. What is its sales revenue?

   Model answer

   The sales revenue is £204,000. The working is 2,400 × £85 = £204,000.

5. 5

   What is cost of sales?

   Model answer

   Cost of sales is the direct cost of the goods or services sold in the period. Cost of sales is also called cost of goods sold.

6. 6

   How is cost of sales calculated for a business that holds inventory?

   Model answer

   Cost of sales equals opening inventory plus purchases minus closing inventory. Closing inventory is deducted because those goods are still unsold.

What is inside Levo

Six ways to work the same material.

Financial Statements revision questions

What does Financial Statements cover in CCEA A-Level Professional Business Services?

4 subtopics: revenue, cost of sales and gross profit, expenses and net profit, assets on the statement of financial position and equity and liabilities. Each one has its own page with questions and model answers.

How is Financial Statements organised?

By the CCEA 3210 specification, subtopic by subtopic, so it matches the order you are taught it in.