Financial Statements Flashcards
What is an income statement used for?
To find out how much wealth was generated
What’s a financial position used for?
To find out accumulated wealth at end of period and what from the wealth is in
Income statement compares
Cost and sales revenue
Financial position looks at
All assets
Income is
value of goods sold at selling price
Asset is
an item owned by business
1) for future use within business
2) which will be converted to money as part of day-to day trading activities e.g. pre-purchase
Liability is
amounts owed to people other than the owners e.g. laons
Capital is
Amount o money owed by business to owner (initially = money invested by owner)
Dividends
Amounts taken out of the business by the owner for their own use
Trade Receivables (Debtors)
Person who owes money to business
Trade Payables (Creditors)
We owe money to them
Inventory (Stock)
Goods/raw materials for sale
Why double entry
All transactions involve giving and receiving
3 scenarios in double entry
- 2 items increasing
- 1 up, 1 down
- 2 decreasing
What are the debit components (and how do they change)?
- Increasing assets
- Increasing expense
- Decreasing liability
What are the credit components (and how do they change)?
- Decreasing assets
- Increasing liability
- Increasing sales
- Increasing capital
Gross Profit =
Sales + Opening stock + purchases - closing stock
To calculate cost of goods sold in that year you have to find
Opening and closing inventory
Net profit =
Gross profit + Other income - Expense
What is not included in income statement?
Non-current assets
What are some examples of non-current assets?
Bank, creditors, debtors, furniture, fitting, retained earnings, share capital, vehicle
What is the general layout of income statement?
3 columns - 1) categories 2) Debit 3) credit
Categories: Sales Less: Cost of Sales Opening Stock Purchases
Less: closing stock
Gross Profit
Less:expenses
Net Profit
What is the general layout of financial position?
Columns: assets, debit, credit
Assets:
Fixed
Current
Current liabilities
Equity
What are current assets?
Stock, debtors, bank
Retained earnings is
Last years + Net profit
Liabilities -
creditors
Equity is
share capital, retained earnings
Depreciation and bad debt are
expenses
Prepayments fall into
current assets
Accruals fall into
liabilities
How does the statement structure change with new information?
Cost, Acc. depreciation, NBV
Account depreciation includes
Current liabilities - accruals ( bad debt)
Total liabilities
Loans are
Non-current liabilities
