Financial Accounting Flashcards
To calculate equity
Equity = assets - liabilities
What to include in Income Statement? (In order)
- Sales
- Cost of sales
- Any other income
- Gross profit
- Expenses
- Operating profit
- Interest and profit after interest
- Tax and profit after tax
- Net profit
Purchases
Cost of buying inventory
What to include in SOFP? (In order)
- Non current assets
- Current assets
- Current liabilities
- Net current assets/liabilities
- Non current liabilities
- Net assets
- Capital
- Retained profit
- Capital + retained profit (equal to net assets)
Double entry for depreciation
Dr Depreciation Expense
Cr Accumulated Depreciation
Current ratio (indicator of liquidity)
Current assets / current liabilities
Acid test (indicator of liquidity)
(Current assets - inventory) / current liabilities
Inventory holding period (working capital efficiency)
Number of days inventory is held
Inventories days = (average inventory / cost of sales) x 365 (or 52 or 12)
Trade payable days (working capital efficiency)
Number of days payments to credit suppliers outstanding
Creditor days = (average trade payables / cost of sales*) x 365**
*Strictly credit purchases but cost of sales used it credit purchases not known
** or 52 or 12
Trade receivable days (working capital efficiency)
Number of days payments from credit customers outstanding
Debtor days = (average trade receivables / sales revenue*) x 365**
*Strictly credit sales but sales revenue used if credit sales not known
** or 52 or 12
Return on capital employed
ROCE = operating profit / (total assets - current liabilities) expressed as a %
Gross profit margin
Gross profit margin = (gross profit / sales revenue) x 100
Operating profit margin
Operating profit margin = (operating profit / sales revenue) x 100
Debt/Equity (Gearing)
Debt/Equity = non current liabilities / equity
Interest cover (Gearing)
Interest cover = operating profit / interest
Earnings per share
Profit after interest and tax / number of shares
Price / earnings ratio
Price / earnings ratio = market value per share / earnings per share
Dividend cover
Dividend cover = profit after interest and tax / dividend
Dividend yield
Dividend per share / market value per share (%)
Disposal of non current assets
Compare net book value with sales proceeds, remove from assets in SOFP and add gain/loss in income statement
Operating activities
Cash flows from the main revenue producing activities of a company:
- cash receipts from sale of goods/services
- cash payments to suppliers of goods/services
- cash payments to employees
- cash payments/refunds of taxes
Investing activities
- Cash payments to purchase non current assets
- Cash receipts from the disposal of non current assets
- cash payments for investment in other companies
- cash receipts from the sale of investments in other companies
- interest received
Financing activities
Alter equity / borrowing structure of the company
- cash receipts from owner investing capital / share issues
- drawings
- cash payments on redemption of shares
- cash receipts from issuing debentures and other borrowings
- cash payments on repaying amounts borrowed
- cash payments under leases
Things to remember for Statement of cash flows
Operating profit includes before interest RECEIVED too
Interest and tax need to be calculated using the 1st payable balance + expense - 2nd payable balance
How cash flows from operating activities is laid out
- Profit before interest and tax
- Depreciation
- Disposals
- Adjusted profit
- Inventory change
- Receivables change
- Payables change
- Increase/decrease in cash due to working capital changes
- Interest paid (be careful)
- Tax paid (be careful)
- Net cash inflow/outflow from operating activities
How cash flows from investing activities is laid out
- Purchase of PPE
- Sale of PPE
- Purchase/Sale of investments
- Interest received
- Net cash inflow/outflow from investing activities
How cash flows from financing activities is laid out
- Loans
- Share capital
- Share premium
- Dividends
- Net cash inflow/outflow from financing activities
Summary of statement of cash flows
- Increase in cash and cash equivalents
- Cash and cash equivalents at start of period
- Cash and cash equivalents at end of period
IF IT DOESNT MATCH WITH NUMBER 1 YOU HAVE MESSED UP
Dividends paid
Expense
Retained profit
Do not touch until bottom of SOFP
Retained profit + net profit - dividend
Asset
A resource with:
- a probable future benefit which arises from a past transaction or event
- must have control of it
- must be possible to measure in monetary terms
Liability
Obligations with:
- a present obligation which arises from a past transaction or event
- settlement of the obligation is expected to result in an outflow of economic benefits (usually cash)
