Theme 3 Topic 13 - Financial Statements Flashcards

1
Q

Define Statement of Comprehensive Income

A

A financial statement showing the income and expenditure (therefore profit or loss) of a business over a period of time (usually a year)

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2
Q

What are three purposes of the Statement of Comprehensive Income?

A

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

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3
Q

Define Revenue

A

Money received from selling goods and services

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4
Q

Define Cost of Sales

A

Direct production costs of the business e.g. raw materials or labour

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5
Q

Define Gross Profit

A

Revenue minus cost of sales

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6
Q

Define Selling Expenses

A

Indirect costs linked to selling of the product e.g. advertising

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7
Q

Define Admin Expenses

A

General overheads e.g. salaries or IT

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8
Q

Define Operating Profit

A

Gross profit minus other operating expenses

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9
Q

Define Finance Costs

A

Interest paid on any loan

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10
Q

Define Profit for the Year

A

Operating profit minus finance costs

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11
Q

Define Profit for the Year (Net Profit) After Taxation

A

Profit left after taxation, Represents profit available which can be reinvested/given to shareholders

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12
Q

Gross Profit =

A

Revenue - Cost of Sales

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13
Q

Gross Profit Margin =

A

Gross Profit/Revenue x 100

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14
Q

Operating Profit =

A

Gross Profit - Other Operating Expenses

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15
Q

Operating Profit Margin =

A

Operating Profit/Revenue x 100

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16
Q

Net Profit =

A

Operating Profit - Finance Costs

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17
Q

Net Profit Margin =

A

Net Profit/Revenue x 100

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18
Q

Define Statement of Financial Position

A

A document describing the financial position of a business at a particular point in time, by comparing the assets and liabilities of a business

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19
Q

What are the two types of asset?

A

Non-Current Asset and Current Asset

20
Q

Define Non-Current Asset

A

These last for more than 12 months

21
Q

What are four examples of non-current assets?

A

Buildings, vehicles, land, machinery

22
Q

Define Tangible Non-Current Assets

A

Non-current assets which exist physically, They depreciate in value over time e.g. a computer network or building

23
Q

Define Intangible Non-Current Assets

A

Do not have a physical presence but are of value to the business e.g. brand name or patent

24
Q

Define Current Assets

A

These last for less than 12 months

25
What are three examples of current assets?
Inventories, Receivables, Cash
26
What are the two types of liabilities?
Non-Current Liability and Current Liability
27
Define Non-Current Liabilities
Debts due for repayment that last for more than 12 months
28
Define Current Liabilities
Debts to be paid back within less than 12 months
29
What are two examples of non-current liabilities?
Mortgage, Bank loan
30
What are two examples of current liabilities?
Payables, Bank overdraft
31
Define Total Equity
Funds provided by shareholders to set up the business, to fund expansion and to purchase fixed assets
32
What are the two forms of equity capital?
Share capital and Reserves
33
Define Share Capital
The fund provided by shareholders through the purchase of shares
34
Define Reserves and Retained Earnings
Reinvested profit which has not been distributed to the shareholders as dividends
35
Define Payables
Money a business owes
36
Define Receivables
Money owed to a business by customers
37
Define Working Capital
Day to day finance
38
Working Capital =
Current Assets - Current Liabilities
39
Total Assets =
Non-Current Assets + Current Assets
40
Total Liabilities =
Non-Current Liabilities + Current Liabilities
41
Net Assets =
All Assets - All Liabilities
42
Define High Quality Profit
Likely to continue into the future, Comes from genuine business growth and the increase in sales
43
Define Low Quality Profit
Arise from exceptional or extraordinary items e.g. sale of assets
44
Define Exceptional Items
Large and one off transactions arising from ordinary trading, So large they distort the accounts
45
Define Extraordinary Items
Large and one of transactions arising from unusual trading e.g. natural disaster