9. Financial reporting and Analysis Flashcards
What is the Nominal/General Ledger
Contains all sales and purchases
Ledger containing all transaction records relating to a companies assets, liabilities, owner’s equity, revenue and expenses.
Will include one or more sales accounts (i.e. different products) and one or more purchase accounts (i.e. divisions) to record details of goods bought intended for resale
What is the Sales Ledger
The sales a business has made, amount of money received for goods or services, money owed (debtors) at the end of each month.
Contains customer accounts
What is Purchase ledger
Ledger containing supplier accounts where business has made purchases
What is double entry book keeping?
Where transactions are recorded twice using at least 2 accounts
e.g. When item is sold for cash, there will be entries in the sales and bank accounts
When might a balance be transferred to a P&L?
Periodically balances for items that have been used up or consumed are transferred to P&L, shows profit made for period
Balances for items not consumed with an on-going balance are not transferred and will instead be shown on BALANCE SHEET
What is the purpose of a Balance sheet?
To show a snapshot of financial position at a particular point in time
What does a Balance sheet show?
Source and use of funds at any one time
- What the company owns (ASSETS)
- What the company owes (LIABILITIES)
What is the structure of a Balance sheet?
Fixed assets (Things company owns, not normally for sale)
Current assets (AR - Things company owns short-term (e.g. stock) expected to be turned to cash within year)
Current liabilities (AP - Within a year)
Long-term liabilities (Loans - Over a year)
Financed by - Capital - Equity (funds injected)
What is a P&L?
Profit and Loss Account/Income statement
- Statement of profit within a given period
- Income less expenditure
- Expenditure relevant to the income not period
e.g. purchase 20 computers, sell 12
- Profit = Income from 12 sold
- Expenditure = Cost of 12 sold
Cost of remaining 8 carried forward to next period
What is the importance of ‘Operating profit’?
- Profit made from operating business
- Revenue less operating cost of business
- Does not include financial or funding related expenses (e.g. Loan repayments)
What is turnover/revenue?
Revenue from sales of goods
Regardless if paid or not
Not to be confused with turnover of assets
What is cost of sales
Cost directly related to turnover/revenue
cost of purchase or manufacture
Give me an example of Administrative expenses
Overhead e.g. postage costs
Expenses incurring in running/operating business not directly related to sales. Expenses occurred regardless of sales made
True/False? Profit after tax is net profit
True
Profit after tax is net profit
belongs to owners after all expenses met
Fund for shareholder dividends or may be retained within business (Reflected on balance sheet)
What is a cash flow statement?
A summary of transactions affecting the cash position since the previous balance sheet or financial position statement
Shows cash movements during a period
- Same period as P&L but deals with cash rather than profit
Name some typical elements of a Cash Flow statement
Operating activities - Cash received - Cash paid AP - Cash paid in salaries Interest paid and received Tax paid or refunded Capital expenditure Dividends paid Raising or repayments of long term finance
What is the purpose of a Cash Flow statement
To show the flow of cash in and out of business with a period (rather than focus on profits, focus is on activity)
Statement captures both the current operating results and the changes in balance sheet
Useful in determining the short-term viability of a company, particularly ability to pay bills
What are Ratios used for
Used to interpret accounts - Help report on performance and position - Control assets and liabilities Simple comparisons Examine trends
What types of ratios are there?
Profitability - Operating Margin - Return on Capital employed Liquidity - Current ratio - Acid test ratio Gearing - Debt to equity ratio (what we have vs what we owe)
