Lecture 1 Flashcards
What are the 3 main financial statements?
The income statement, The Balance sheet, The Cash flow statement
What does an income statement show?
Shows revenues and expenses for a past trading period; usually 12 months, shows the trading position of the business.
Gross profit formula?
Sales revenue minus the cost of sale
Operating profit formula?
Gross profit minus Operating expenses
Pre-tax profit formula?
Operating profit minus interest expense
Net profit (After tax) formula?
Pre-tax profit minus corporation tax
What are cost of sales?
Direct variable expenses of a company
Examples of operating expenses
Rent, Salaries and wages, Utilities, Marketing and advertising, depreciation
What is a balance sheet?
Balance sheet has 3 main sections and is a listing of all of a firms assets, liabilities and equity at a point in time.
Examples of Current assets
Cash, Account receivables, Inventory and Prepaid expenses
Examples of Non-current assets
Property, Plant, Equipment; incudes land, buildings, machinery, vehicles, furniture and intangible assets
Why is an asset current?
Because it can easily be turned into cash within 12 months of the balance sheet date
When are assets classified as Non-current?
If they are not intended to be turned into cash within 12 months of the balance sheet.
Difference between a Current liability and a Non-current liability?
A current liability is payable within 12 months of the balance sheer date, whilst a non current liability is payable after 12 months of the balance sheet date
Examples of Current liabilities
Accounts payable, Accrued expenses, Short-term loans, and Tax payable
1 example of a Non-current liability
Long-term loans
Examples of items found in the equity section
Retained earnings, Beginning capital, Share capital, Dividends, and Current year profit or loss
What is the accounting equation?
Assets = Liabilities + Equity
What is Cost Volume Profit analysis?
Cost Volume Profit analysis examines the relationship between changes in activity (i.e output) and changes in total sales revenue, costs and net profit
What is Contribution per unit?
The sales price per unit minus the variable cost per unit
What is Total contribution?
The total sales revenue minus the total variable cost
Contribution/ Sales ratio
The difference between total sales and variable costs, expressed as a percentage of revenue
What is Breakeven?
The level of activity were we cover both our variable and fixed costs & make neither a profit or a loss
Breakeven formula?
Fixed costs/ (sales price per unit - variable costs per unit)
Margin of safety formula?
Budgeted or actual sales - break-even sales
Margin of safety % formula?
(Budgeted or actual sales - breakeven sales) / budgeted or actual sales
