financial terms Flashcards
(17 cards)
shareholders equity-definition
•amount of money a business still holds after paying off liabilities that you can give to owners/shareholders
•Retained earnings are the net earnings a company either reinvests in the business or uses to pay off debt.
•The remaining amount is distributed to shareholders in the form of dividends
balance sheet formula
asset= liabilities + share holders equity
adjustments
•alteration to your books to make your financial statements more accurately reflect your income and expenses
depreciation
•happens when assets lose value over time
accruals
means of recording an expense that was incurred in one accounting period but not paid until a future accounting period
pre payments
•settlement of a debt or installment loan in advance of its official due date. •recorded as assets on the balance sheet
cash flow
•way of recording the way that money comes into and out of a business,
net cash flow equation
Net cash flow = total inflow – total outflow
closing balance equation
•Closing balance = total inflow – total outflow (net cash flow) + opening balance
•closing balance of month is opening balance of next month
how to improve cash flow
•increase cash inflow
•decrease cash outflow(reduce spending)
tax
•compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions
corporation tax
•19% for all limited companies
•Corporation tax is paid by businesses in the UK, and is calculated on their annual profits
•all profits are taxable
•fines if late
income tax
•If you’re a sole trader, you’ll pay income tax on the profit you make from your business. You’ll need to submit a self-assessment tax return to HMRC to calculate how much you owe
vat
•ultimately paid by the consumer
•indirectly through the business
•business has to report it
retained profits
•amount of net income left over for the business after it has paid out dividends to its shareholders.
•equity
•reinvested
advantages of retained profits 🧃
•They are cheap
•They are very flexible – management have complete control over how they are reinvested
•They do not dilute the ownership of the company
disadvantages of retained profits
•criticised for restricting the value of dividends by shareholders
•If retained profits don’t result in higher profits, then there is an argument that shareholders could make better returns by having the cash for themselves
