FINANCIAL STATEMENTS WEEKS 3&4 Flashcards
types of financial statement
statement of financial position
income statement
statement of cash flow
statement of changes in equity
basic accounting equation for the financial position
assets=liabilities+equity
what are assets made up of
CASE
cash,accounts receivable,supplies,equipment
what are liabilities made up of
accounts payable,share capital
what is equity made up of
retained earnings (revenue-expenses-dividends)
retained earnings
revenue-expenses-dividends
define assets
owned resources
cash,inventory,equipment,trade receivable
define liabilities
money owed (debts,wages payable)
define equity
ownership claims on total assets (net worth of business) eg retained earnings, share capital, investments by shareholders increases equity
what do income statements show
net profit
accrual concept
accounting year with split time periods
revenue/costs recognised when incurred not when the money is paid, eg if you pay for electricity after 5 months but the financial year ends in 3, you calculate the cost for 3 months
cash basis accounting
revenue+costs are recognised as cash is paid
what part of the financial statement do accruals belong in
liabilities as the expense has not been paid yet
what does cost of sales refer to
direct costs incurred for goods sold
what are operating expenses
all other expenses (rent,wages)
straight line depreciation
loss of value spread evenly (depreciating the same amount each month)
estimated residual value
value after depreciation
reducing balance depreciation
normal depreciation (power of whatever) just write it out
bad debt
not being able to pay back debt (expense to the business)
trade receivables
money owed that hasn’t been received yet eg installments
cash equivalent
can be converted into cash within 3 months
statement of cashflows
movements on money that may not have been received yet
operating cash inflows/outflows
direct (shows cash only transactions)
indirect (summary of cash movements)
how would you find indirect cash inflows/outflows
start with net income
cancel non cash transactions (accounts receivable)
cancel changes in capital
cancel other cash eg interest
financial position table
ASSETS (CASE)= LIABILITY + EQUITY (ACE)
cash, accounts receivable, supplies, equipment
accounts payable, share capital, retained earning (rev-expenses-dividends)
cash flow types (must be in order)
cash flows from…
operating
investing
financing
net increase in cash
cash at beginning of period
cash at end of period
operating
income statement activities (sales of goods, interest/dividends, paying labourers, tax etc)
investing
sale from property etc investments in debt
financing
changes in non-current liabilities and equity
sale of ordinary shares/bonds redeeming long term debt
