Topic: 4 Financial Statements Flashcards
What is Income Statement?
Income Statement which describes a company’s revenues and expenses and the resulting net profit or loss over a period of time (Accounting Period concept) due to earnings activities
What is Statement of Changes in Equity?
Statement of Changes in Equity which reports the changes that occurred in the owners’ financial interest during the reporting period
What is Balance Sheet?
Balance Sheet which describes a company’s financial position (types and amounts of assets, liabilities, and equity) at a point in time
What is Statement of Cash Flows?
Statement of Cash Flows which identifies cash inflows (receipts) and cash outflows (payments) over the reporting period.
When is Income considered earned? (Trading Business)
For a trading business, income is considered as earned when goods are delivered to or received by the customer or when sufficient risk has been transferred
When is Income considered earned? (Service Business)
For a service business, income is considered as earned when the service has been performed.
What is Liquidity?
Ease with which assets can be converted into cash
What is the Accounting Period Process?
The Accounting Period principle presumes that operating life of a business can be divided into SPECIFIC TIME PERIODS to facilitate meaningful reporting and comparisons.
What is Revenue?
Revenue represents an economic benefit or resources that a company obtains by providing customers with goods or services
What is the Matching Concept?
This concept states that expenses should be recognised and recorded when those expenses helped to generate for a given accounting period.
When is Income considered as earned? (Trading business)
Income is considered as earned when goods are delivered to or received by the customer or when sufficient risk has been transferred.
When is Income considered as earned? (Service business)
Income is considered as earned when the service has been performed.
What is Net Profit?
Net Profit is the overall profit of the business. This is the profit of the business after all expenses of operating the business have been considered. It includes both operating and non-operating revenue and expenses.
What are the 3 components of the shareholder’s equity?
i) Share Capital
ii) Retained earnings
iii) Asset Revaluation Reserve
What is Share Capital?
Share Capital is the amount invested by shareholders.
What is Retained Earnings?
Retained earnings is profit (past-year’s profit + current-year’s profit) that has not been distributed to shareholders.
What is Asset Revaluation Reserve?
Asset Revaluation Reserve is the surplus created when assets are revalued
What is the Statement of Changes in Equity?
The Statement of Changes in Equity explains the effects of transactions on shareholders’ equity during the accounting period.
What is the Balance Sheet?
The Balance Sheet is an accounting report that shows the financial position of a business at a particular point in time.
What is Financial Position?
The Financial Position refers to resources owned (assets) and owed (equity and liabilities).
What is Liquidity?
Liquidity is the ease with which assets can be converted into cash.
How are Assets classified?
i) Current Assets
ii) Non-Current Assets
What are Current Assets?
Current assets are cash and other resources which are expected to be sold, collected, or used. WITHIN ONE YEAR, or the company’s OPERATING CYCLE, whichever is longer.
What is Operating Cycle?
Operating cycle is the average length of time it takes to acquire stock, sell it and collect cash.
What are Non-Current Assets?
Non-current assets are long term resources of a business which are NOT EXPECTED to be converted into cash within an operating cycle.
What are Liabilities?
Liabilities are amounts owing to external parties for resources supplied and are classified on the basis of time of repayment.
What are the two main categories of liabilities?
i) Current Liabilities
ii) Long Term Liabilities
What are Long Term Liabilities?
Debts which are due to be repaid over more than one accounting period.
What are Current Liabilities?
Debts which are due to be repaid or settled WITHIN one accounting period
What is Equity?
Equity is the claims of the owners on assets of the business.
What are the two main sections of Equity?
i) Issued Share Capital
ii) Reserves
What is Issued Share Capital?
Capital Contributed by owners
What are Reserves?
Undistributed profits of the business. These include retained earnings and asset revaluation reserve
