Topic 2 - Measuring & Evaluating Financial Position & Performance Flashcards
How are the income statement and Balance Sheet connected?
The Link between the Income statement and the balance sheet occurs through retained profits (shareholders’ equity)
What is Share Holder’s Equity?
Funds that have been invested and earned by owners (shareholder’s) of the business
What is Share Capital?
Share Capital: the money invested in the business in return for shares
What are Retained profits?
Retained profits: The cumulative profits earned by the business’s operations that have not been distributed by shareholders through dividends.
What are Dividends?
Dividends: Profits distributed to shareholders
What is the Accounting Equation?
Assets = Liabilities + Share Holder’s Equity
What is the modified Accounting equation, that shows the relationship between income statements and balance sheets?
Assets = Liabilities + Share Capital + Opening retained profits + Revenue - Expenses - Dividend
How is Shareholder’s Equity Increased?(2)
- Share Capital
- Increase in Profits
how is Shareholder’s Equity decreased?(2)
- Increase in expenses
- Declare dividend
What are Assets?
Assets: The resources that the company controls in order to operate and gain future economic benefits.
What are the three Essential Characteristics of Assets?
- Future Economic Benefits
- Control by the entity
- Occurrence of past transactions or other past events giving the entity control over the future economic benefits
What are Liabilities?
Liabilities: probable debts or obligations that result from an entity’s past transactions, that will be paid with assets or services
What are the two Essential Characteristics of Liabilities?
- present obligation exists and the obligation involves settlement in the future
- has adverse financial consequences for the entity
