Term 2 - Business Management (Finance) Flashcards
What are the three different financial statements?
Cash flow statement, income statement, and balance sheet.
What are cash flow statements?
This report shows the movement of cash receipts (inflows, such as money from sales) and cash payments (outflows).
Done regularly: e.g. weekly or monthly.
Only recorded on cash. Anything bought or sold on credit is NOT included.
What are accounts payable?
Amounts due to suppliers for goods and services received that have not yet been paid for (people who the business owes money to).
What is liquidity?
Whether the business has adequate cash to meet its debts as they fall due.
What is an income statement?
Summary of income earned and expenses incurred (spent) to determine whether the company is gaining profit or losing profit over a period of time.
What are the five elements of an income statement?
- Sales: revenue/income into business
- Cost of goods sold (COGS): includes all costs directly related to production of goods and -services
- Gross profit: found by subtracting COGS from sales
- Expenses: all remaining costs
- Net profit: the profit, what the business actually makes
What are expenses?
Expenses: cost incurred in process of acquiring/manufacturing a product/service to sell. Cost (direct/indirect) is associated w/ managing all aspects of sales of the goods and services. E.g. wages, rent, electricity, advertisement etc.
How is net profit calculated?
Gross profit minus expenses.
What are the three different types of expenses?
Selling: salaries, packaging, delivery
Administrative: rent, electricity
Financial: bank loans, leases.
What is a balance sheet?
The balance sheet (also called the statement of financial position) is a report that shows the overall financial stability of the business
Purpose:
- To help owners keep a watch on their debt and equity level
- Compare their overall financial position with that of previous periods
- Assist with the process of financial decision making
- It shows how much you own and how much you owe
What are the three main aspects on a balance sheet?
1) Assets: things that the business owns/of value to the business
2) Liabilities: what the business owes
3) Owners Equity: what the business owns minus liability (net assets)
What are current and non-current assets?
Current assets: used under a year (e.g. cash, raw materials, finished goods.
Non-current assets: used for over a year (e..g vehicles, equipment, land, fixtures and fittings)
What are current and non-current liabilities?
Current liabilities: business must pay under a year (e.g. credit card debts, bank overdrafts)
Non-current liabilities: business expected to pay over a years time (e.g. mortgage, lease.)
What is owners equity?
Owners equity refers to the owners’ claim on the assets of the business after liabilities have been paid. It is also called net assets.
