Accounting - Statements and Cash flow q's Flashcards
Statement of cash flows?
Shows the money in and out of a business within a period.
Income statement use?
Shows the wealth generated within a period. The difference between the value of the sales made and the cost of the goods.
SFP?
Shows the accumulated wealth at the end of the period, so a combination of cash and inventory. Shows out flows and inflows.
What is the key difference between the income statement and statement of cash flows compared to the SFP?
The IS and SOCF are concerned with measuring flows of wealth and cash over time, respectively. The SFP is concerned with measuring the amount of wealth at a particular moment in time.
Limited Company: Income Statement.
Net Sales Revenue (Sales Rev - Returns inwards) Less cost of sales: Opening Inv Net purchases - Closing inv.
= Gross profit Add other income Less expenses: Distribution Admin
= Operating Profit (PBIT)
-Finance costs
= Profit before tax (PBT)
less tax
=Profit for the year.
Limited Company: Statement of Financial Position - Assets
Total assets Non current assets: Land Buildings Vehicles
Current Assets: Closing Inv Trade Receivables (-provision for doubtful debts) Prepayments/ Other receivables Cash and Cash Equivalents.
= Total Assets
Limited Company: Statement of Financial Position - Equity and Liabilities
Equity:
Ordinary share Capital
Share Premium
Retained Earnings
Non-current Liabilities:
Loans
Debentures
Preference share capital
Current Liabilities:
Trade Payables
Accruals/ Other Payables
Tax liability
= Total equity and liabilities.
Limited Company: Expenses
Admin:
Rent and Rates
Salaries
Office Building Depreciation
Distribution: Salesperson Salary Vehicle running costs Vehicle Depreciation Bad Debts Provision for Doubtful Debts
Finance:
Interest on loans/ debentures
Preference share dividends
When will equity increase?
If the owner pays more into the business or if inventories change and are paid for immediately.
When asked to explain what the financial statement shows, what could be a few things to look at?
The largest investments, and the amount of total assets these make up.
The amount of total investment that current assets account for.
The long term finance split into equity and long term borrowings.
The ratio of current assets covering current liabilities.
How would you calculate assets at the end of a period?
Assets = Equity (at start of period) + Profit (sales rev - loss for the period) + liabilities at the end of the period.
If the company makes a profit for the year, and no share holder withdraws funds from the business, where will the extra amount be and what will it be categorised under?
The extra amount will be under the equity section, under Reserves (revenue reserve).
Preference share holders?
These shares guarantee that if a dividend is paid, the preference shareholders will be entitles to the first part up to a maximum value. E.g. if the company issues one million preference shares at a dividend rate of 6%, £60’000 will be given to preference share holders for any dividend paid by the company that year. The other shareholder will receive the ordinary share holders.
What are the two names of when a company either reduces or increases the nominal share value?
Splitting for reducing nominal value and consolidating for increasing the nominal value.
What does a bonus issue do?
takes one part of equity (a reserve) and puts it into another (share capital). It reduces the value of each share like a share split, and the amount transferred to shareholders becomes part of the permanent equity base of the company.
