BUSSFIN WEEK 3-4 Flashcards
are records that provide an indication of the organization’s financial
status and Provide an overview of a business or person’s financial condition in both short and long term.
Financial statements
Four basic types of financial statements:
Balance sheet
Income statement
Cash flow statements
Statements of retained earnings
referred to as statement of financial position or condition, reports on a
company’s assets, liabilities, and Ownership equity as of a given point in time.
Balance sheet
It is also referred to as Profit and Loss statement (or “P&L”), reports on a company’s
income, expenses, and profits over a period of time. Profit & Loss account provide information on the
operation of the enterprise. These include sale and the various expenses incurred during the processing state.
Income statement:
It explains the changes
in a company’s retained earnings over the reporting
period.
Statement of Retained Earnings
It reports on a company’s cash
flow activities, particularly it is operating, investing and
financing activities.
Cash Flow Statement
types of cash flow activities
operating, investing and
financing activities.
a matter of ensuring that
transactions that take place after the business’s financial
period are not included in the financial statements.
Adjusted Trial Balance - Closing the Books
a journal entry made at the end of
an accounting period that allocates income and
expenditure to the appropriate years.
Adjusting entry
refers to the ability to convert the asset into cash – some
items may be more liquid than others.
Liquidity
a term that is used to refer to the current level of financial
stability associated with a company or individual.
Solvency
means that the business has cash in hand to honor
current obligations, or at least has assets that can quickly be
converted to cash without impacting the ability of the business
to continue functioning.
Liquidity solvency
refers to the potential of a venture to be financially successful.
Profitability
Three basic situations that can describe a business’
financial situation.
It can be profitable
It can break even
It can operate at a loss.
enables investors and corporate management to take a deep look at
a company’s finances, with a special emphasis on how financial
statement items vary over a period of time. It is a method of analyzing financial statements in which each item in the
statement is represented as a percentage of a single larger item
Vertical analysis
refers to a type of fundamental analysis in which a financial analyst
uses certain financial data to assess a company’s performance over
time. It helps a firm appraise its economic evolution from one
period to another.
Horizontal Anaysis
simple but effective tool that is often used to get an accurate picture
of the financial stability of a company and This figure will reveal the current status of a company to honor short-
term debt obligations.
Current Ratio
shows the proportion of profits generated by the sale of
products or services, before selling and administrative expenses. It is used to examine the ability of a business to create sellable products in a cost-effective
manner.
Gross Profit Ratio
net sales minus cost of goods sold?
total gross sales less returns inwards and discount allowed?
Gross Profit
Net Sales
the ratio of after-tax profits to net sales.
Net Profit Ratio
gross profit minus operating expenses and income tax.
Net profit
a financial analysis tool used to measure a company’s ability
to collect outstanding account receivables balances. This ratio determines how quickly a company collects outstanding cash balances
from its customers during an accounting period.
Receivables Turnover Ratio
the amount of sales revenues less discounts, returns or other allowances
posted in the company’s accounts receivable journal.
Net credit sales
the company’s total outstanding accounts receivable less
the allowance for bad debts expense.
Average net accounts receivable
