Financial Statements Flashcards
Current Assets
Used within a year
Non current Assets
Will provide benefit to the organization for more than one year
Current Liabilities
Must be paid within a year
Non current liabilities
Due in more than 1 year
Retained Earnings
A result of profitable operations, not a pot of cash awaiting distribution to stockholders
Why is profit not the same as cash?
Because not only cash transactions are reflected in income statement. It includes revenues regardless of when cash is received. Cannot look at income statement to determine viability, you have to look at balance sheet.
What are cash equivalents?
Short-term investments that can be converted into cash with little delay.
Eg Money market funds and treasury bills (gov securities you can buy)
Liabilities are recognised when
They are legally owed
Have to be paid and
Can be measured objectively
Stockholder’s equity
Two main elements:
Contributed or paid-in capital
Retained earnings
Net Profit for 2021
=Retained earnings 2021-Retained earnings 2020
Accrual basis of accounting
Recognises revenues and expenses when they occur regardless of when cash is received or disbursed
Cash basis of accounting
Recognises revenue and expense when cash is received and disbursed
Gross profit
Sales-Cost of goods sold
Trading part on IS
Gross and above
Below gross profit on IS
Operations part
