BUSINESS - FINANCIAL STATEMENTS

Income Statement Practice Questions

  • Covers key components of an income statement, including revenue, cost of sales, and gross profit.
  • Explores the impact of changes in expenses on the overall financial outcome.
  • Includes practical calculations for determining retained profit and revenue.
  • Focuses on common errors in income statements and their effects.

Here are the first 3 questions. Click “View all questions” to see the complete assessment.

Q1.

What does cost of sales represent in an income statement?

  1. A) All payments made to the owners of the business
  2. B) The amount of profit kept in the business
  3. C) The total value of sales made during the period
  4. D) The cost of producing or purchasing the goods that were sold

Q2.

Which description of revenue in an income statement is correct?

  1. A) The income earned from sales before deducting business costs
  2. B) The difference between gross profit and revenue
  3. C) The amount remaining after dividends have been paid
  4. D) The direct cost of the goods sold by the business

Q3.

A business has cost of sales of £46,000 and gross profit of £29,000. What is its revenue?

  1. A) £29,000
  2. B) £17,000
  3. C) £46,000
  4. D) £75,000

Q4.

Which sequence correctly shows how the main figures in an income statement are used?

  1. A) Revenue + cost of sales = gross profit; gross profit − expenses = profit
  2. B) Cost of sales − revenue = gross profit; gross profit + expenses = profit
  3. C) Revenue − expenses = gross profit; gross profit + cost of sales = profit
  4. D) Revenue − cost of sales = gross profit; gross profit − expenses = profit

Q5.

A retailer's office rent increases, while its revenue and cost of sales remain unchanged. How will this affect its income statement?

  1. A) Both cost of sales and retained profit will increase
  2. B) Both revenue and gross profit will increase
  3. C) Gross profit will remain unchanged, but profit will decrease
  4. D) Gross profit will decrease, but profit will remain unchanged

Q6.

A company earns a profit of £36,000. It pays £7,000 in tax and distributes £11,000 as dividends. What is its retained profit?

  1. A) £54,000
  2. B) £29,000
  3. C) £18,000
  4. D) £25,000

Q7.

Business A has revenue of £100,000, cost of sales of £60,000 and expenses of £25,000. Business B has revenue of £90,000, cost of sales of £45,000 and expenses of £35,000. Which comparison is correct?

  1. A) Business A has both the higher gross profit and the higher profit
  2. B) Both businesses have the same gross profit and the same profit
  3. C) Business A has the higher profit, but Business B has the higher gross profit
  4. D) Business B has both the higher gross profit and the higher profit

Q8.

An income statement accidentally leaves out £8,000 of cost of sales. All other figures are correct. What effect will this error have?

  1. A) Revenue will be overstated by £8,000, but profit will be correct
  2. B) Gross profit and profit will both be understated by £8,000
  3. C) Gross profit will be correct, but retained profit will be understated
  4. D) Gross profit and profit will both be overstated by £8,000

Q9.

Study the income statement extract in the figure. What heading should replace X?

Diagram for question 9: Study the income statement extract in the figure. What heading should replace X?
  1. A) Cost of sales
  2. B) Revenue
  3. C) Retained profit
  4. D) Gross profit

Q10.

Use the income statement flow diagram to calculate the amount that belongs in the final blank box.

Diagram for question 10: Use the income statement flow diagram to calculate the amount that belongs in the final blank box.
  1. A) £18,000
  2. B) £28,000
  3. C) £8,000
  4. D) £12,000

What this assessment covers

Concepts tested

  • Understanding of revenue and cost of sales in income statements
  • Calculation of gross profit and its components
  • Impact of expenses on net profit
  • Retained profit calculation after tax and dividends
  • Identification of errors in financial statements

Question Mix

  • Medium questions included

Skills you build

  • Interpreting financial data from income statements
  • Calculating revenue and profit figures
  • Analyzing the effects of financial changes on statements
  • Comparing financial performance between businesses
  • Identifying and correcting errors in financial documents

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