Chapter 21 - Income Statement IGCSE Exam Questions

What does an income statement show? (1 mark)

• A business's financial position at a specific point in time

• The inflows and outflows of cash over a period

• The revenue, costs, and profit of a business over a period

• The value of assets and liabilities

How is Gross Profit calculated? (1 mark)

• Revenue – Expenses

• Revenue – Cost of Sales

• Revenue – Total Costs

• Revenue – Retained Profit

Which of the following is an example of a business expense? (1 mark)

• Raw materials used in production

• Wages paid to office staff

• Sales revenue earned from customers

• Loans received from the bank

If a business has revenue of $50,000 and a cost of sales of $20,000, what is its gross profit? (1 mark)

• $70,000

• $30,000

• $20,000

• $10,000

What does the term "retained profit" mean? (1 mark)

• The total profit before expenses are deducted

• The profit left after dividends are paid to shareholders

• The revenue earned from sales

• The money borrowed from banks

A business has revenue of $80,000, cost of sales of $30,000, and expenses of $25,000. What is its net profit? (1 mark)

• $80,000

• $55,000

• $25,000

• $50,000

What is the key difference between profit and cash? (1 mark)

• Profit includes only cash transactions, while cash includes all revenues and expenses

• Profit represents total earnings, while cash refers to the actual money available

• Profit is recorded on a cash flow statement, while cash is recorded in the income statement

• Profit is the same as cash in all businesses

Who would use an income statement to decide whether to invest in a company? (1 mark)

• Employees

• Suppliers

• Shareholders

• Customers

Why might lenders be interested in a company's income statement? (1 mark)

• To check if the company is making enough profit to repay loans

• To determine the value of the company's assets

• To find out how much stock the business holds

• To compare its performance with other businesses

How can a business increase its retained profit? (1 mark)

• Increase expenses

• Reduce revenue

• Increase total costs

• Reduce dividends paid to shareholders