General Extra Flashcards
(24 cards)
Income statement
Flows of wealth
Cash flow
Flows of cash
Balance sheet
Financial position at a moment in time
Asset questions
Is there a probable future economic benefit?
Does the benefit arise from past events?
Is there a right to control the resource?
Can the resource be measured in financial terms?
Yes= asset
Examples of assets
Property
Equipment
Fixtures
Patents
Receivables
Investments outside the business
Inventories
Cash
Accounting equation
Assets = equity + liabilities
Introducing more funds by the owner will increase
Equity
Cash in bank
Increase in assets = increase in equity
Wealth generated as a result of trading will be to benefit of the owners and will increase their stake in the business
Loss arising from trading will
Reflect in reduction in equity of owners
Any funds introduced or withdrawn by the lender will
Affect equity
Withdrew 1500 for own use, equity reduced by 1500 and cash by 1500
Current liability examples
Trade payables
Bank overdraft
Non current liabilities
Long term borrowing
Order of assets in statement of financial position
Furthest from cash to closest to cash
Use sub-totals for
Non current assets and currents assets
Non current and current liabilities
5 uses of budgets
Promote forward thinking and Identification of short term problems
Help coordination between sections of business
Motivate managers to better performance
Basis for a system of control
System of authorisation for managers to spend up to a limit
Layout of an income statement
Revenue Cost of sales GROSS PROFIT Expenses OPERATING PROFIT Interest PROFIT FOR PERIOD
Rent paid in advance
Not shown in income statement
Shown in prepaid in balance sheet
Cash flow statement layout
Opening balance
Cash in
Cash paid
Closing balance
Net present value
Total PV- initial cost
Discount factor
1/(1+r)^t
Future value
CF x (1+r)^t
CF
t
r
Cash flow
T = time period
R= rate
Gross profit
Sales revenue- cost of sales
Present Value
PV = CF/(1+r)^t
