Financial statements and ethical principles Flashcards
What are financial statements?
Summary of transactions that have taken place in the business over a period of time.
What are the two purposes of Financial Statements?
Summary of Performance
Summary of the Financial position
How often are Financial Statements produced?
A company usually produces a financial statements after a years time at it is the best period to record the companies financial position. However a statement can be produced for any period.
What does a business want to know for the period recorded in the statement?
Income & Expenses
What does a business want to know at the end of the period recorded?
Position of the Company
What are the two financial statements?
Statement of profit and loss
Statement of Financial Position
Equation that determines position of the company
Assets, Liabilities and Capital. Assets - Liabilities = Capital
The statement of profit or loss for a period:
Revenue X Less: Cost of sales = Gross profit Sundry income: Less: Expenses: Net profit
Revenue
Income
Cost of Sales
Cost of making and producing the item.
Gross Profit
Revenue - Cost of Sales
Sundry Income
Income not earned from making the product
Expenses
Others expenses not related to their product
Net Profit
Profit after all expenses and income.
How to calculate cost of sales?
Opening Inventory + Purchases of goods - Closing Inventory.
How to calculate Sundry Income
Discounts received + Commission received + Rent received
What can the Statement of Financial position be referred to?
A snapshot in time
Non-current assets
Assets used within a business over a long period.
Current assets
Assets that are expected to be realised within the normal course of trading (1 year)
Non-Current Liabilities
Payables that will be paid over a longer period of time.
Current Liabilities
Payables that will be paid within the year.
Total net assets (Capital)
Assets-Liabilities = Net Assets (Capital)
How to calculate non-current assets
Cost - Accumulated depreciation = Carrying Value
Example of Non current Liability (at this stage)
Bank Loan
Examples of Current Liabilities
Payables , Accruals , Vat Payable
Capital Account
Start of year Capital +/- Profit/Loss - Drawings = Total Capital
