Financial information Flashcards
What is the purpose of a cash budget?
Let manager compare actual budgets with planned budgets
Highlight periods where negative balance is expected so they can take corrective action
Highlight periods of surplus cash flow which could be invested in capital
Secure a loan from a bank
Management can control expenditure
Set targets to focus on which motivates employees
Why do businesses have cash flow problems?
Owners drawing too much Too much money tied up in stock Low sales Bad debts Too much credit foe customers Purchasing fixed assets Lack of forward planning
How to solve cash flow problems?
Sell unnecessary assets Arrange cheaper finance Arrange cheaper suppliers Stricter debt control Discounts for prompt payment Promotions to reduce stock level Owners draw less cash
Income statement
Trading account:
Compares value of sales to the customer with the value at cost price
Calculates gross profit
Income statement:
Calculates profit and loss after all expenses are deducted
Statement of financial position terms
Shows assets of a business and its liabilities
- trade receivables are customers who haven’t paid yet
- trade payables are suppliers who have sold goods to the gin
- working equity is difference between current assets and current liabilities
Purpose of a statement of financial position
State the value of assets of organisation
A legal requirement
Shoes working equity figure
Informs decision making
What documents do management use?
Profitability checks organisations performance in comparison to previous years and competitors
Improve profitability for the future and identify where savings made and costs reduced
What do owners use?
Interested in profitability to compare return with other investment opportunities
Can decide to remain investor, increase investment or reduce it
What do employees use?
Profitability to determine if thy can get a wage increase
Salves revenue for job security
Trade payables use?
Overall profitability Nd liquidity to asses likelihood of receiving payment for goods they have supplied or intend to supply
What do banks and lenders use?
Overall profitability and liquidity to decide whether to supply finance or demand repayment of amounts already paid
What does hmrc use?
Profit made by organisation
Allows for calculating tad due from the organisation
What do potential investors use?
Trading account shows profit frombuying and selling stock
Income statement shows overall profit over specified time
Statement of financial position shows position of a business at exact times
Cash budge shows predicted income and expenditure for upcoming year
Share price shows current value for the organisation
