2. Financial statements Flashcards
sole proprietorship
(also known as…)
sole trader
A business owned by one person.
partnership
A business that is formed when two or more proprietors join together to own a business.
company
(also known as…)
corporation
A separate legal entity that is established by registering with ASIC.
ASIC
Australian Securities and Investments Commission
The agency charged with protecting investors and maintaining the integrity of securities markets.
proprietary company
A private company often indicated by the ‘Pty’ at the end of the company name.
public company
A separate legal entity in which ownership is available to the general public.
GAAP
Generally Accepted Accounting Principles
The accounting:
- standards
- rules
- principles
- procedures
that make up authoritative practice for financial accounting.
AASB
Australian Accounting Standards Board
The standard-setting body whose mission is to:
- – develop* and
- – maintain*
high-quality financial reporting standards.
IFRS
International Financial Reporting Standards
Standards issued by the
International Accounting Standards Board.
IASB
International Accounting Standards Board
A board, similar to the AASB, whose mission is
to develop a single set of high-quality standards requiring:
- transparent and
- comparable
information.
consolidated balance sheet
A type of balance sheet that groups together the parent company and its subsidiaries as one reporting entity.
current asset
Any asset that is reasonably expected to be converted to cash or consumed within one year of the balance sheet date.
non-current asset
A resource that is used in a company’s operations for more than one year and is not intended for resale.
Key Formula
assets
Current Assets
+ Non-current Assets
= Total Assets
intangible asset
A resource that is used in operation for more than one year, is not intended for resale and has no physical substance.
current liability
An obligation that is reasonably expected to be satisfied within one year.
non-current liability
An obligation that is not expected to be satisfied within one year.
contributed equity
(of a company)
The amount of equity a company generates through the sale of shares to investors (shareholders).
multi-step income statement
Calculates income by grouping certain revenues and expenses together and calculating several subtotals of income.
other comprehensive income
Includes gains and losses not included in traditional revenue and expense items.
sales revenue
The resources that a company generates during a period from selling its inventory.
cost of sales
The cost of the inventory sold during a period.
gross profit
(also known as…)
gross margin
The profit that a company generates when considering only the sale price and the cost of the product sold, its ‘mark-up’.
operating expenses
Recurring expenses that a company incurs during normal operations.
operating profits =
Gross profit – Operating expenses
net finance costs =
finance costs – finance income
profits before income tax expense
(also known as…)
‘earnings before income taxes’
The profit that a company generates when considering both the:
– cost of the inventory and
– the normal expenses
incurred to operate the business.
income tax expense
The amount of income tax expense for a given period.
horizontal analysis
A method of analysing a company’s account balances over time by calculating absolute and percentage changes in each account.
Key Formula
horizontal analysis
Dollar Change in Account Balance
=
Current Year Balance – Prior Year Balance
–––––––––––––––––––––––––––––––––
Percentage Change in Account Balance
=
Dollar Change / Prior Year Balance
vertical analysis
A method of comparing a company’s account balances within one year by dividing each account balance by a base amount to yield a percentage.
Key Formula
vertical analysis
For the balance sheet
% Account Balance / Total Assets
For the income statement
% Account Balance / Net Sales or Revenue
common-size financial statement
The product of a vertical analysis;
A statement in which all accounts have been standardised by the overall size of the company.
notes to the financial statements
The additional textual and numerical information immediately following the financial statements.
independent auditor’s report
A report, prepared by a registered company auditor for the shareholders, stating an opinion on whether the financial statements present fairly, in conformity with Australian Accounting Standards, the company’s financial condition and results of operations and cash flows.
directors’ report
Forms part of the financial report and covers matters which are the Board of Directors’ responsibility.
