Accounting and finance Flashcards
Income Statements and what they contain
Profit loss statement - Revenue and expense during a paticular period in time.
An income statement contains:
Revenue Cost of sales Gross profit Distribution costs Administration expenses Operating profit Finance costs Profit before Tax Tax Expense Profit attributable to shareholders
Gross profit formula
How much profit is generated from a from every 1 pound of revenue before overheads.
Operating profit
Records how much profit has been made in total from the trading activities of the business before account is taken of how the business is financed
Net Profit
Net profit is the total profit with all expenses taken away
Advantages of an income statement
- Allows shareholders/owners to see how the business has performed and wether it has made an acceptable profit.
- Helps identify if the profit is sustainable for the business
- Enables comparison with other similar businesses
- Allows providers of finance to see whether the business can pay them back.
What is a statement of financial position.(Balance.)
Summary of financial balances of an individual or business
What is in a statement of financial decision.
Reports:
Non-current assets Inventory Receivables Payables Working capital Non-current liabilities Net assets Retained earnings Total shareholders equity.
What is meant by depreciation
Depreciation is the decrease in value of an asset or currency usually.
Why Prevent depreciation?
To increase the longevity of assets, in turn making your business leaner in the long run
Straight line depreciation calculation
Cost of. - Salvage
Fixed Asset. Value
——————————-
Useful life
Impacts of depreciation on a business
Costs of depreciation.
Cash flow issues
Value and wealth of the business worsens
Liquidity Ratios formulas For: Current Ratios and Acid test.
Current ratios:
Current assets
———————
Current liabilities
Acid Test Ratio:
Current assets - Stock
———————————
Current liabilities
Solvency ratios Gearing and interest cover
Gearing ratios:
Total debt
——————
Total Equity
Interest cover ratios
Earnings before expenses
————————————-
Interest expense.
