Week 3 - mastering financial statement Flashcards
The importance of financial statements to management
They require up to date accurate financial information to understand the position, progress and prospects of business in the industry
Importance of financial statements to shareholders
Enables shareholders to know about the efficiency and effectiveness of management in addition to the financial strength of the company
Assets
Resources controlled by the company as the result of past events where future economic benefits are expected to flow
Liabilities
Present obligations arising from past events which is expected to result in outflows from company resources
Equity
The residual interest in the assets the company after deducting all liabilities
Cash basis revenue
Revenue recognised at the time cash is received or collected
Accrual basis revenue
Revenue recognised when control of goods/ services are transferred to the buyer
Expenses
Refers to a decrease in economic benefits during the accountancy period in the form of outflows or depreciation
Balance sheets
Financial statements that shows the companys financial position at a specific point in time
Book value
The number of assets or liabilities according to the balance sheet
Market value
The value of assets or liabilities if they were to be resold in the market
What are book values based on
The historical or original values
What are market values based on
Current values of assets and liabilities
Income statements
A financial statement that shows the revenue, expenses and net income of a firm over a specific accounting period
How are balance sheets and financial statements different
Balance sheets show financial transactions over time whereas income statements show the balance of accounts at the end of a period
Net income
The profit or loss of a business after subtracting all expenses from total revenue
Cash flow
Represents the actual movement of money in and out of a business over an accounting period
Statement of cash flows
Tracks the inflows and outflows of cash in a company over a specific accounting period
What are cash flows equal to (socf)
The cost of goods sold
What are cash inflows equal to (socf)
Sales
What are the 3 sections of cash flow statements
- operating activities (the revenue generating activities of an organisation)
- Investing activities (any cash flows from the aquisition and disposal of long term assets)
- financing activities (any cash flows that result in changes in equity or debt)
Free cash flow
Cash available for distribution to investors after a firm pays for new investments or additions to working capital
UK corporation tax
Companies pay tax on their income
25% in the UK
