(BALANCE SHEET)Financial Management Slide 10 Flashcards
Define financial management
Involves managing the assets and liabilities and owners investment in the firm: generating the financial data required to make decisions , and using the tools of finance and to make effective decisions
Why keep accounts
For compiling tax returns
For seeking financing
To inform management decisions
What is monetary measurement
A common denominator
When is monetary measurement a problem
In times of high inflation
What is the concept of the business entity
A business is regarded as having an existence separate from its owners
What is the double entry concept based on
The premise that each transaction within a business has a twofold effect on the business.At least TWO account affected by each business transaction
What does the double entry rule state
That for every debit entry there must be a corresponding credit entry of equal amount and vice versa
What shape are each account
T shaped
What is the left hand side known as in T shaped accounts
Debit side
What is the right hand side known as in T shaped account
Credit side
Accruals / matching concept
Transactions occur and are recorded when agreements are made not when cash changes hands
Accounting attempts to match revenue with the expenses incurred to generate this revenue
What are assets
Items of value OWNED by the business
Eg fixed assets and current assets
What are liabilities
Sums of money OWED by the business
Eg current liabilities and long term liabilities
What is capital
Represents the amount of money invested by the owner (owners equity)
What is cash flow
Refers to cash movement through the business
It in invaluable for business success
What is Net Profit
Revenue minus Expenses
What is the formula for the accounting equation
Assets=Capital + Liabilities
Balance Sheet
A “point in time” statement
Asset and liability position of the business entity at a particular date
Assets and how they have been funded
Profit and Loss Account
A statement of income and expenditure for a specific time period
Measurement of profit for an accounting period
Alternative names for Profit and Loss account
Income and Expenditure
Income Statement
Cash Flow Statement
Statement of the main movements of cash into and out of the business over the accounting period
Name the three principle statements involved in the financial account process
Balance Sheet
Profit and Loss Account
Cash Flow Statement
Name the components of a balance sheet
Fixed assets
Current assets
Current liabilities
Long term liabilities
Equity
