Basic Principles (of Accounting Analysis) - CH8 Flashcards
What is the Purpose of Financial Statements?
Provides stakeholders with info about a company’s financials. Stakeholders can then compare this info against previous periods for the same or different companies.
Who produces these Financial Statements?
Directors of the companies.
How often are Financial Statements produced?
Periodically or annually. This is to show the company’s performance over the most recent period, and the end period.
When does the Accounting period end?
12 months.
What is Accounting?
Recording, measuring reporting financial events/activities to parties in usable format (e.g. a financial statement).
What are the 3 types of Financial Statement?
- Balance sheet.
- Income statement.
- Cash flow statement.
What does the Balance Sheet?
Shows a companies financial position at the end of a given period.
What are the 3 Components of the Balance Sheet?
Equity - total capital given by shareholders and that is due.
Assets - owned by the company.
Liabilities - owed by the company to others.
Asset formula?
Assets = Equity - Liabilities. (should = 0 as they should be equal/balanced to eachother).
What is an Income Statement?
The amount of revenue and expenses earned.
What is Profit and Loss?
Profit = income > expenses.
Loss = income < expenses.
What is a Cash Flow Statement?
How much cash is generated and spent during the accounting period.
What is the Cash Flow statement divided into?
Divides net cash flows into operating, investing and financing activities.
Statements are Audited. What does this mean?
Statements prepared by directors are independently assessed. If they’re true and fair then they are unqualified, if not then they’re qualified.
