Theme 3 Topic 13 - Financial Statements Flashcards
Define Statement of Comprehensive Income
A financial statement showing the income and expenditure (therefore profit or loss) of a business over a period of time (usually a year)
What are three purposes of the Statement of Comprehensive Income?
Evaluate performance in comparison with profit objectives, Show potential investors that the firm is able to repay loans, Enables judgments about profit quality and utilisation
Define Revenue
Money received from selling goods and services
Define Cost of Sales
Direct production costs of the business e.g. raw materials or labour
Define Gross Profit
Revenue minus cost of sales
Define Selling Expenses
Indirect costs linked to selling of the product e.g. advertising
Define Admin Expenses
General overheads e.g. salaries or IT
Define Operating Profit
Gross profit minus other operating expenses
Define Finance Costs
Interest paid on any loan
Define Profit for the Year
Operating profit minus finance costs
Define Profit for the Year (Net Profit) After Taxation
Profit left after taxation, Represents profit available which can be reinvested/given to shareholders
Gross Profit =
Revenue - Cost of Sales
Gross Profit Margin =
Gross Profit/Revenue x 100
Operating Profit =
Gross Profit - Other Operating Expenses
Operating Profit Margin =
Operating Profit/Revenue x 100
Net Profit =
Operating Profit - Finance Costs
Net Profit Margin =
Net Profit/Revenue x 100
Define Statement of Financial Position
A document describing the financial position of a business at a particular point in time, by comparing the assets and liabilities of a business
What are the two types of asset?
Non-Current Asset and Current Asset
Define Non-Current Asset
These last for more than 12 months
What are four examples of non-current assets?
Buildings, vehicles, land, machinery
Define Tangible Non-Current Assets
Non-current assets which exist physically, They depreciate in value over time e.g. a computer network or building
Define Intangible Non-Current Assets
Do not have a physical presence but are of value to the business e.g. brand name or patent
Define Current Assets
These last for less than 12 months
What are three examples of current assets?
Inventories, Receivables, Cash
What are the two types of liabilities?
Non-Current Liability and Current Liability
Define Non-Current Liabilities
Debts due for repayment that last for more than 12 months
Define Current Liabilities
Debts to be paid back within less than 12 months
What are two examples of non-current liabilities?
Mortgage, Bank loan
What are two examples of current liabilities?
Payables, Bank overdraft
Define Total Equity
Funds provided by shareholders to set up the business, to fund expansion and to purchase fixed assets
What are the two forms of equity capital?
Share capital and Reserves
Define Share Capital
The fund provided by shareholders through the purchase of shares
Define Reserves and Retained Earnings
Reinvested profit which has not been distributed to the shareholders as dividends
Define Payables
Money a business owes
Define Receivables
Money owed to a business by customers
Define Working Capital
Day to day finance
Working Capital =
Current Assets - Current Liabilities
Total Assets =
Non-Current Assets + Current Assets
Total Liabilities =
Non-Current Liabilities + Current Liabilities
Net Assets =
All Assets - All Liabilities
Define High Quality Profit
Likely to continue into the future, Comes from genuine business growth and the increase in sales
Define Low Quality Profit
Arise from exceptional or extraordinary items e.g. sale of assets
Define Exceptional Items
Large and one off transactions arising from ordinary trading, So large they distort the accounts
Define Extraordinary Items
Large and one of transactions arising from unusual trading e.g. natural disaster
