U2- Financial Statements Flashcards
Name the 3 main financial statements that all businesses use
Income statement
Statement of financial position
Cash flow statement
Describe the income statement
Used for both internal and external reporting
The form that it takes will differ according to its use however it will still provide the same basic information
It details the business income and expenditure over the course of the financial year. Where the business income is greater than the expenditure a profit is recorded
It is a continuation of the businesses trading account
How do income statements differ for multinationals?
They use a more complicated format
They fall under the jurisdiction of the Companies Act and must produce their year end accounts in accordance with the formats prescribed by the law
Describe the statement of financial position
It shows a snapshot at a particular date in time usually the last day of the financial year
It records the financial position and worth of the business at a particular point in time
It forms part of the historic accounting records of the business
What are the 3 things which a statement of financial position shows?
Assets
Liabilities
Equity
(Equity= assets - liabilities)
What are non current assets? (SOFP)
The productive assets of the business, without these the business would not be able to function on a day to day basis
What are current assets? (SOFP)
Assets that change on a daily basis and can be easily turned into cash
They are listed in descending order of liquidity
What are current liabilities? (SOFP)
Liabilities which normally have to be repaid within 12 months, they are something the business owes money for
They are listed on the top half of the statement
What is a cash flow forecast?
Produced for internal management and used to predict the receipts and payments of cash and plan ahead for shortfalls
