Chapter 10 Flashcards
Statement of comprehensive income definition
To calculate a net profit of a business for a financial year
Statement of financial position
All assets, owners equity and liabilities
Own capital
Investment made by the owner of the business
Borrowed capital
Creates a liability for the business
Long term capital (fixed)
Selling shares, land, building, vehicles
Short term capital (working)
Over draft. Short term loan (shorter than 12 months)
What is budgeting
A plan on how much money will be available and how it should be spent
Human capital
Labour
Return on owner’s equity
Profibility
Calculation return on owner’s equity
Net profit OVER owner’s equity X100
Return on owners equity allows
Business to compare the rate of return in the business with the rate of return in alternative investments
Acid test ratio
Liquidity ratio
Calculation acid test ratio
Current assests/inventory : current liabilities
Acid test ratio allows
Us to see the business ability to settle short term debts under abnormal conditions
Current capital ratio
Liquidity
Calculation current capital ratio
Current assets : current liabilities
Current capital ratio allows
The owner to determine if the business can pay short term liabilities
Calculation solvency ratio
Total assets : total liabilities
Solvency ratio allows
Us to see if the business can pay long term liabilities
Comprehensive income
Financial position
Income statement
Balance sheet
