Business 3.4 Flashcards
P & L
Profit and loss, Showing the revenue, cost and profit over a period of time
Balance sheet
Records the net worth of a business at one moment in time
What are Assets
Assets are Items of monetary value owned by the company
current assets
Assets that are likely to be converted into cash within 12 months
Liabilities
A financial obligation that must be paid in the future
current liabilities
Debts of the business, usually paid < 12 months
Long term liabilities
Long term loans of the business - > 12 months
Net Assets
Total Assets – Total Liabilities
The net worth of the business
Shareholder equity
Value of Total Assets above Total Liabilities
Net worth of the company
Value belonging to owners
Revenue
The amount earned from the sale of products
Revenue = Price x quantity sold
Cost of goods sold
The cost of purchasing the inputs needed to produce the product
Expenses
Costs of running the business not directly related to production. E.g.
Advertising, rent, machinery repairs
Net profit
Net Profit = Gross profit - Expenses
Profit and loss account
A summary of the business’ financial performance over a given time period
Showing the revenue, cost and profit over a period of time
Also known as Income Statement
Define Investors
Assess the value of the business compared to the share price
Is the business becoming more or less profitable?
Define managers
Measure the performance against targets
The role of creditors in accounts
Is the business financially secure?
Does it have liquidity (I.e cash) to pay its debts
What are the 5 stakeholders for accounts?
Investors, Managers, Banks, creditors, Government and Tax authorities
The role of government and tax authorities
Calculate the corporation tax
Is the business following tax and accounting rules?
What are the principles and ethics of accounts?
Integrity; Honestly and with morals
Objectivity; No bias, conflict of interest
Due care; Do it with care, competent
Confidentiality; Do not disclose information to external parties (Stock market)
Professional behaviour Comply with the law, (Enron accounting scandal ) Was America’s 7th largest company , Energy company
Limitations of final accounts
One set of accounts is limited on its own; Need to compare across time
Some items cannot be measured in terms of numbers; E.g. management skill, level of technology
Can only compare companies in similar industries
Only minimum information published by law
Accounts are historic; Can be 6 months out of date
define intangible assets
Items of monetary value owned by the company (assets),
That have no physical substance and are not financial instruments (e.g. bank accounts)
Types of intangible assets
Marketing-related; Trademarks, logos, brand names, slogans, internet domain names
Customer related; list of customers names and email addresses
Contract related; franchises, licensing agreements
Technology-related; patents, innovation
