Financial Statements Flashcards
Who are the users of financial statements?
Owners
Employees
HMRC
Trade unions
Competitors
Investors
Lenders
What do owners use financial statements for?
To assess profits and to inform decision-making.
What do employees use financial statements for?
To ensure their jobs are secure.
What do HMRC use financial statements for?
To ensure the business is paying the correct amount of tax.
What do trade unions use financial statements for?
To assess if their members are due a pay rise.
What do competitors use financial statements for?
To measure their success against each other.
To consider a takeover.
What do investors use financial statements for?
To assess the potential for investment.
What do lenders use financial statements for?
To decide whether or not to give a loan.
What are the terms that appear in an income statement?
Sales revenue
Cost of sales
Gross profit
Expenses
Profit for the year
What is sales revenue?
The amount of money made from selling goods or services?
What is cost of sales?
The amount of money spent on selling goods.
What is gross profit?
The profit made from buying and selling inventory.
What are expenses?
Running costs incurred throughout the year.
What is profit of the year?
The profit made after expenses are deducted from gross profit.
What is the purpose of preparing a statement of financial position?
To state the value/net assets of the organisation.
To help inform the decision making of the organisation.
Allows the organisation to compare their value with competitors or previous years.
Can be used to calculate ratios.
What are the terms that can appear in a statement of financial position?
Non-current assets
Current assets
Current liabilities
Working equity
Net assets employed
Non-current liabilities
Net assets
Equity and reserves
What are non-current assets?
Items owned for a period of more than one year.
What are current assets?
Items owned for a period of less than one year.
What are current liabilities?
Items owed for a period of less than one year.
What are non-current liabilities?
Long-term debts of the business, e.g. bank loan, debentures etc.
What is working equity?
The ability to pay short-term debts.
What are net assets employed?
This is the value of non-current assets added to the working equity figure.
What are net assets?
The overall value or worth of the business.
What is equity and reserves?
This shows how the business has been financed e.g. the initial investments in the business.
It should ass up to the exact value of total net assets.
