Financial Accounting Flashcards
income statement
shows income and expenditure over course of a year
what is contained within an income statement
sales
cost of sales
gross profit
overheads+expenses
what is an income statement also known as
profit and loss account
cost of sales
cost of making/buying good
overheads and expenses
costs not directly involved in the production process
benefits of an income statement
use for forecasting
track performances
offers a picture of profitability
what is a statement of financial position also know as
balance sheet
what is a statement of financial position
describes financial position of company at particular time
compares value of assets with liabilities
whats included in a statement of financial position
assets
liabilities
depreciation
estimate of the fall in value of a fixed asset over time
main elements of current liabilities
trade creditors short term borrowing current tax(corportation,VAT+income)
how would financial account be used to assess business performance
compare over time
against competitors
benchmarking
weaknesses of using published financial info to assess performance
valuing assets+liabilities is subjective
accounts don’t explain the why’s, just describe what has happened in the past
why is provision for depreciation needed
balance sheet-reducing the value of the fixed assets. This means that the balance sheet reflects a true and fair value of the assets
P+L- reduces the profit for that year because some of the asset was used up in that time period
straight line depreciation
same amount is charged every year
Original Cost of the Fixed Asset-Residual value / Useful Life of the Asset
reducing balance depreciation
the same percentage of an asset’s value is taken off every year
liquidity ratios
current ratio
acid test
insolvency ratios
gearing
interest cover
efficiency ratios
creditor turnover
debt turnover
none current assets turnover
stock turnover
profitability ratios
gross profit+net margin
ROCE
return on equity
shareholder ratios
dividend per share
dividend yield
earnings per share
price earnings ratio
what do efficiency ratios show
how well business manages assets and liabilities
what does a high number for stock turnover mean
higher=better
lower=problem with stock control
gearing ratio
the proportion of assets invested in a business that are financed by long-term borrowing
