INCOME STATEMENTS Flashcards
What is Assets?
Assets are those items of value owned by the business.
Fixed/non-current assets (buildings, vehicles, equipment etc.) are assets that remain in the business for more than a year – their values fall over time in a process called depreciation every year.
Short-term/current assets (inventory, trade receivables (debts from customers), cash etc) are owned only for a very short time.
There can also intangible (cannot be touched or felt) non-current assets like copyrights and patents that add value to the business.
What are lialibilites?
Liabilities are the debts owed by the business to its creditors.
Long-term/non-current liabilities (loans, debentures etc.)- they do not have to be repaid within a year.
Short-term/current liabilities (trade payables (to suppliers), overdraft etc.)- these need to be repaid within a year.
Define Share holder equity?
Shareholder’s Equity is the total amount of money invested in the company by shareholders. This will include both the share capital (invested directly by shareholders) and reserves (retained earnings reserve, general reserve etc.).
Shareholders can see if their stake in the business has risen or fallen by looking at the total equity figure on the balance sheet.
What are the Uses of Financial Position
*When the current assets subtotal is compared to the current liabilities subtotal, investors can estimate whether a firm has access to sufficient funds in the short term to pay off its short-term obligations i.e., whether it is liquid
*One can also compare the total amount of debt (liabilities) to the total amount of equity listed on the balance sheet, to see if the resulting debt-equity ratio indicates a dangerously high level of borrowing. This information is especially useful for lenders and creditors, (especially banks) who want to know if the firm will be able to pay back its debt
*Investors like to examine the amount of cash on the balance sheet to see if there is enough available to pay them a dividend
Managers can examine its balance sheet to see if there are any assets that could potentially be sold off without harming the underlying business. For example, they can compare the reported inventory assets to the sales to derive an inventory turnover level, which can indicate the presence of excess inventory, so they will sell off the excess inventory to raise finance
What is Profitability Ratio
Profitability Ratios: profitability is the ability of a company to use its resources to generate revenues in excess of its expenses. These ratios are used to see how profitable the business has been in the year ended.
What is Organisational Structure
Organisational structure refers to the levels of management and responsibilities whithin a buisness
What is Span of Control
Number of Subordinates working directly under manager in the organisation structure
What is Chain of Command
Chain of Command is the structure of an organisation that allows instructions to be passed on from senior managers to lower level of management
What is Delegation
Giving Subordinates the authority to perform tasks
What is Recruitment and Selection
Attracting and selecting the best candidates for job posts
Recruitment
Recruitment is the process from identifying that the buisness needs to employ someone up to the point where applications have arrived
Define liquidation
Selling everything it owns to pay debts
What is Debtors
Debtors are customers who haver already purchased goods from the buisness but didnt pay for them at that time
What are creditors
Creditors are suppliers who supplied items to the buisness but were not paid at the time of supply
What is accounts
Accounts are the financial records of a firms transactions
