Lec 2 Flashcards
(17 cards)
Financial statements
Balance sheet or SOFP - info on financial condition of a business at a certain moment
Income statement P&L - info on net income of a business during certain period
Statement of cash flows - info on the origin and use of cash
Statement of shareholders equity - presents individual components of equity and changes during the last year
Notes - info on the criteria, principles and norms used in the financial statements
SOFP -
Assets - what company invest in
goods and rights
Liabilities and equity - where does the financing come from - equity and liabilities
Nca Land Ca Cash Inv Acc Rec
Total assets
Equity
Capital
Ncl
Bank loans
Cl
Suppliers
Total eq & liabilities
Income statement (PL)
Income statement Revenue -COGS GROSS Margin Wages Rent Dep Operating income Financial costs Profit before tax Tax Profit for year
Income statement components - revenue
Revenues are generated through the sale of the product or a service
We recognise revenue whenever
It’s probable that economic benefits will be received
The amount of revenue can be measured reliably
Ownership and control of goods is transferred to the customer
Income statements components - expenses
Expenses is the consumption of resources during a period (MATCHING PRINCIPLE)
Cogs - all costs directly related when producing the product or service
Direct maT, lab
Cash discounts received on purchases
Example of matching principle - so if you buy 120 packs of food and sell 100, it costs you £1 a packet the cogs is 100 and the left over 20’gonintonassets
Cash flow statement
Shows how cash is changed during an accounting period
Cash equivalents = cash banks bonds
2 ways to prepare CFS:
Direct method or indirect
Direct is common in entrepreneurs/small firms and indirect is common in large firms
Cash flows pt 2
Operating activities - cash inflows and outflows directly related to earnings from
Operating activities
Investing activities - acquisition or sales of productive facilities and investments in the securities of other companies
Financing activities- related to external sources of financing
Cash flow under indirect method:
Profit before tax
Adjustments
+amortisation
Interest rev & expense
Changes in working capital Inv Trade payables Trade receivables Cash generated from ops
Other operating activities
Interest paid or received
Div paid
Tax paid
Net cash generated from operating activities
Investing activities
Capital expenditure
Capital receipts
Net cash generated by investing activities
Financing activities
Receipts/payments from equity transactions
Receipts / payments from financial liabilities
Net cash generated by financing activities
Net decrease / increase in cash and cash equiv
Cash at beginning of year
Cash at end of year
Difference in income statement and cash flow statement
Some items in IS are not collected / paid, e.g. dep and impairments
Revenues are recorded irrespective of when you pay them
Effects of cash flow statement
Repaying borrowings requires cash paid to lender so negative change
Making a profitable sale on credit + sales rev no change
Buying a nca on credit no change
Receding cash from a credit +
Dep a nca none
Making a share issue for cash +
Statement of shareholders equity
Statement shows variation in equity accounts
Variation comes from: new stock issuances Retained profit for year Foreign currency translation Asset revaluation Dividends (-)
Double entry principle
Each transaction recorded at least once on debit and on credit
Accounting eqn
Assets = liabilities + stockholders equity
Accrual accounting
Assets, liabilities, revenues and expenses should be recognised when the transaction that causes them occurs (not necessarily when is paid or received)
E.g buy truck 20k on dec 2014 and pay it feb 2015
Dec 24
Ppe +NCA 10k
Accounts payable (+CL) 10K
Feb 2015
Accounts payable (-CL) 10K
Cash (-CA) 10K
Accrual accounting matching principle
Expense recognition principle - expenses incurred during a period as a result of delivering or producing goods and or rendering services
4 basic financial statements
Income statement - statement of stockholders equity - balance sheet - statement of cash flows
Links of financial statements
Income statement: revenue - expenses = net income
Statement of stockholders equity- beginning retained earnings + NET INCOME - dividends = ending ret earnings
balance sheet: liabilities + stockholders equity (use ending Ret earnings in ) = assets
Statement of cash flows: op cash flows + investing cash flows + financing cash flows = increases ( decreases) in cash
