4.3 How to interpret financial statements

Question 1

What is an Income statement?

Answer 1

Shows the profit of loss made during a period of time

Question 2

What are the components of an income statement?

Answer 2

Revenue
Overheads
Fixed costs
Gross profit
Net profit
Retained profit
Dividends

Question 3

What is a statement of financial position?

Answer 3

Shows what a business is worth at any given moment in time

Question 4

What are the components of a financial position statement?

Answer 4

Current assets
Trade receivables
Prepayments
Trade payables
Accruals
Net assets
Total equity
Net book value

Question 5

Definition of trade reveivables?

Answer 5

Money owed by debtors usually because of goods sold on credit

Question 6

Definition of Prepayments?

Answer 6

Money paid in this accounting period which relates to the next accounting period

Question 7

Definition of trade payables?

Answer 7

Money business owes to creditors, usually for purchase of stock

Question 8

Definition of accruals?

Answer 8

Expenses/costs for this accounting period yet to be paid

Question 9

What does a cash flow statement show?

Answer 9

Flow of funds into and out of a business over a period of time

Question 10

What does a cash flow forecast show?

Answer 10

Predicted flow of funds into and out of a business in the future
Cash flow issues that are likely to arise in the forthcoming trading period