Chapter 33 - Financial Statements Flashcards
Statement of profit and loss
A statement that records the revenue, costs and profit or loss of a business over a given period of time.
Statement of financial positions
A statement that records the values of a business’s assets, liabilities and shareholders’ equity at one point in time.
Asset
An item of moetary value that is owned by a business
Liability
A financial obligation of a business that it is required to pay in the future.
Gross Profit
Revenue less cost of sales
Cost of sales
The direct cost of the goods that were sold during the financial year.
Profit from operations
Gross profit less overhead expenses ( aka operating profit )
Expenses
The overhead costs that arise in operating the business, which are deducted from gross profit to calculate profit from operations.
Profit Before Tax
Profit from operations less interest costs.
Profit For The year ( After Tax Profit )
Profit before tax less profit ( or corporate ) tax.
Dividends
The share of the profits paid to shareholders as return for investing in the company.
Low Quality Profit
One off profit that cannot easily be repeated or sustained.
High Quality Profit
Profit that can be repeated and sustained.
Shareholders Equity
The total value of assets less the total value of liabilities
Share Capital
The total value of capital raised from shareholders by the issue of shares.
Intangible Assets
Items of value that do not have a physical presence, such as patents, trademarks, and copyrights.
Trade Receivables ( Debtors )
The value of payments to be received from customers who have bought goods on credit.
Trade Payables ( Creditors )
The value of debts for goods bought on credit payable to suppliers; aka accounts payable.
Non Current Liabilities
The value of debts of the business that are payable after more than one year.
Net Assets
The value of total assets less the total value of liablities.
Equity
The value of share capital plus cumulative retained earnings.
GoodWill
Arises when a business is valued at or bought for more than the balance sheet value of its assets.
Window dressing
Techniques used by companies to manipulate financial statements and reports to show more favorable results.
Net Current Assets
The amount of capital needed for day to day activities also called as working capital
Reserves
Accumulated retained profits and capital reserves from re-evaluation of noncurrent assets.
Net Realisable Value
The amount for which inventory can be sold minus the cost of selling it.
Depreciation
The decline in the estimated value of a non current asset over time.
Net Book Value
The current statement of financial position value of a non-current asset = original cost less accumulated depreciation.
Straight Line Depreciation
A constant amount of depreciation is subtracted from the value of the asset each year.
Annual Depreciation Formula
The original cost of the asset - Expected residual value / Expected useful life of the asset ( years).
Gross Profit
Sales Revenue - Cost of goods sold
Net Profit
Gp - Indirect Expenses
Operating Profit
GP - Over Head
Net Profit before Investment and Tax
Operating Profit - Other indirect expenses
Net profit after tax ( EAT/ PAT )
Net profit before tax ( EBT / PBT ) - Tax
Profit After Tax Uses
- Payment Of dividends
- Repaying loans
- Reserves and Surplus
