Financial Statements

Question 1

1// Income Statement

Answer 1

• It is a statement to show the result of business i.e. Profit or Loss.
• It compares the revenue of business with expenses.
• The pro forma income statement reflects the projected results of the operations for a firm for a given period of time.

$profitable: If sales (revenue) are greater than cost (expenses)
$lost : If sales (revenue) are less than cost (expenses)

Question 2

Income Statement important terms

Answer 2

*Net Sales
consists of total sales minus allowances for returned goods and discounts.

*Cost of Goods Sold
includes all the direct costs associated with producing or delivering a product or service, including the material costs and direct labour

• Operating expenses
  include marketing, utilities, and administrative costs not directly related to producing a product or service

Question 3

2// Balance Sheet

Answer 3

A Balance Sheet is a financial statement that shows the assets (what the business owns), Liabilities (debts), and net worth of a business.

Question 4

The net-worth

Answer 4

is the difference between assets and liabilities and is also called Owner’s equity

Question 5

Total Assets Must Equal (“Balance”) Total Liabilities + Owner’s Equity

Answer 5

• financed with debt, the loan is a liability.
• purchased with the owner’s (or shareholders’) money, it was financed with equity.
• Liabilities and owner’s equity pay for all assets.

Question 6

3- Cash Flow Statement

Answer 6

• records inflows and outflows of money as they occur.

Cash flow = Cash Receipts – Cash Disbursement

Question 7

Working capital equals:

Answer 7

• Current assets minus current liabilities

- Amount of cash that would remain if all short-term debt was paid with the cash on hand

Question 8

If a firm runs out of working capital, it:

Answer 8

• Will not be able to spend the cash needed to bring a new product to market
• Will still have ongoing bills to pay
• May not be able to stay in business

Question 9

Inflows and Outflows of cash are divided into three categories:

Answer 9

1- Operation: Money used to run the business
2- Investment: Money going into and out of investments in the business, such as equipment, vehicles or real estate.
3- Financing: Money used to finance the business (debts and equity)