Key terms

Question 1

What does profit mean?

Answer 1

Refers to the net income of a business which is calculated as total revenue minus total expenses.

Question 2

What does cost of sales mean?

Answer 2

The cost of a businesses goods it has sold.

Question 3

What does gross profit mean?

Answer 3

Gross profit = Revenue minus Cost of Sales

Question 4

What does purchases mean?

Answer 4

New inventory is bought for resale.

Question 5

What does purchase returns mean?

Answer 5

When buyers return goods to the suppliers.

Question 6

What does sales returns mean?

Answer 6

When customers return goods to the sellers.

Question 7

What does Carriage Inwards mean?

Answer 7

Refers to the transportation costs a business pays to have goods be delivered to its premises from suppliers.

Question 8

What does Carriage Outwards mean?

Answer 8

Refers to the transportation costs customers pay to have goods be delivered to them from a business.

Question 9

What does Equity mean?

Answer 9

The portion of a business that belongs to its owners after all debts and liabilities are subtracted.

Question 10

What is Opening inventory?

Answer 10

The amount of unsold inventory at the start of the accounting year.

Question 11

What is Closing inventory? (what is created then?)

Answer 11

The amount of unsold inventory at the end of the accounting year when the Income statement is created.