Sole Trader - Financial Statement Terminology Flashcards
Income Statement
A financial statement which is prepared to calculate the Gross Profit which is the profit on buying and selling inventory.
It is also prepared to calculate the final profit to the business before tax. This is our Profit for the Year = Gross Profit - Expenses
Carriage In
Transport/delivery costs involved in getting the inventory from the supplier to the business. It is included as part of the Cost of Sales calculation in the Income Statement.
Discount Allowed
This refers to the discount we have given our customers off the cost of the goods. It is shown as an expense in the Income Statement.
Depreciation
The reduction in the value of Non-Current Assets due to age and wear and tear. It is shown as an expense in the Income Statement and is also added to the Provision for Depreciation as part of the Aggregate Depreciation calculation in the Statement of Financial Position.
Carriage Out
Transport/delivery costs involved in getting the goods to our customers. It is shown as an expense in the Income Statement.
Bad Debts
These usually refer to Trade Receivables who have become bankrupt and are not going to pay us the money they owe us. Bad Debts are shown as an Expense in the Income Statement.
Provision for Bad Debts
This is created to retain funds in the business to cover bad debts. There is no money in a provision. It is shown as an expense in the Income Statement when created or increased and is deducted from Trade Receivables in the Statement of Financial Position.
Discount Received
This refers to the discount we have received from our suppliers. It is shown as ‘Other Income’ in the Income Statement.
Statement of Financial Position
A financial statement which shows what the business owns (assets), what the business owes (liabilities) and what the business is worth.
Non-Current Assets
Items which the business owns and has in the business for several years eg property, machinery, vehicles, equipment, fixtures and fittings.
Provision for Depreciation
This refers to the total depreciation that has been deducted from a Non-Current Asset eg Motor Vehicles over the previous years. It is included as part of the Aggregate Depreciation (Agg Depn) calculation in the Statement of Financial Position. The Provision for Depreciation (shown in Trial Balance) + the depreciation shown in the Income Statement as an expense are added together to find Aggregate Depreciation shown in the SOFP.
Current Assets
Items which the business owns but for less than one year and their value will constantly change eg Closing Inventory, Trade Receivables, Bank, Cash and Expenses Receivable.
Trade Receivables
This refers to customers who owe the business money. Trade Receivables are shown as Current Assets in the Statement of Financial Position.
Cash and Cash Equivalents
This is our bank account balance and cash added together. It is shown in the Statement of Financial Position. If the Cash and Cash Equivalents has a Dr balance then it is a Current Asset. If it has a Cr balance then it will be shown as a Current Liability.
Rent Receivable
This refers to rent that we have paid this year but it is not due until next year. It is shown as a Current Asset in the Statement of Financial Position.
Current Liabilities
This refers to amounts we owe which should be paid back within the year (short term debt) eg Trade Payables, Bank Overdraft and Expenses that are Payable
Trade Payables
Businesses/suppliers the business owes money to which will have to be paid back within the year. Shown as a Current Liability in the Statement of Financial Position.
Bank Overdraft
This is when the business has spent more money than they had to spend in their bank account and they are overdrawn. It is a Current Liability in the Statement of Financial Position.
Wages Payable
Wages which should have been paid this year but have not yet been paid to employees (they are due). This is shown as a Current Liability in the Statement of Financial Position.
Expenses Payable
These are expenses which are due this year but are still unpaid. They will be shown as a Current Liability in the Statement of Financial Position.
Non-Current Liabilities
This is the amount we owe which will take years to repay (long term debt) e.g. loans and mortgages.
Equity
This is the amount invested into the business by the owner. It is shown as the first entry in the bottom half of the Statement of Financial Position.
Drawings
This is cash or inventory taken from the business by the owner for his/her own personal use. It is shown in the bottom half of the Statement of Financial Position as a deduction.
