3.4 Financial documents Flashcards
Define statement of comprehensive income
A financial document showing a firm’s income and expenditure over a period of time. Used to calculate profit at the end of the year
Match the order of components in statement of comprehensive income:
Expenses,
cost of sales,
profit for the year,
profit for the year after tax,
sales revenue,
gross profit,
operating profit,
1 Sales revenue
2 Cost of sales
3 Gross profit
4 Expenses
5 Operating profit
6 Profit for the year
7 Profit for the year after tax
Define sales revenue
Income. Cash coming into the business through selling goods or services
Define costs of sales
Costs from supplying goods or services. (e.g. Buying raw materials, Packaging costs, Gas and electricity costs)
Define gross profit
Remaining cash after removing costs of sales from sales revenue
Define expenses
Fixed costs that do not change with production. (e.g. interest on paid loans, insurance and salaries)
Define Operating profit
Money remaining from the gross profit minus from expenses
Define profit of the year
Total revenue minus total costs
Define profit of the year after tax
Money left over after everything has been taken away, including taxation.
What are dividends?
A sum of money paid regularly (typically annually) by a company to its shareholders out of its profits
Why are some stakeholders (Shareholders/Employees/Suppliers/Government) interested in a statement of comprehensive income?
Shareholders - Interest in earned profits, business growth and dividend payments
Employees - Interest in profits earned and potential for wage increases and job stability
Suppliers - Interested in the continued success of the firm they are supplying to and can determine the level of trade credit offered to business.
Define trade credit
When a business and supplier agree to delay payment for supplies at a later scheduled date. (30-90 days)
What questions should be considered when analysing and interpreting the statement of comprehensive income? (when there is a profit)
Is the profit higher or lower than last year?
If lower, why is profit falling?
Is the profit higher than that of competitors?
Define statement of financial position.
A financial document showing the financial structure of a business at a specific point in time
What questions should be considered when analysing and interpreting the statement of comprehensive income? (when there is a loss of profit)
Is this a short-term problem?
Is this a long-term problem?
Are competitors making losses?
What are assets?
Items that are owned by a business
What does statement of financial position identify?
It identifies a businesses assets and liabilities and specifies the capital used to fund business operations.
What are current assets
Items that can be turned into cash within 12 months.
What are non-current assets?
Items owned by the business in the long term (cannot be sold
What are liabilities
financial obligations / items that are owed that a business must usually pay
What is the difference between current and non current liabilities
Current liabilities must be paid within a year, non current is over 12 months
