Week 3 - Preparing Financial Statements Flashcards
What is a stakeholder?
- Anyone interested in a businesses’ activities
What are the 8 accounting stakeholders?
- Manger (Review performance of business)
- Shareholders (Prospects possible investment opportunities)
- Employees (Job security, Wage improvement, Motivation)
- Investors (Review risk and future returns associated with company)
- Suppliers (Reviews risk of trading with firm)
- Government (Tax liabilities and economic data collection)
- Banks/Lenders (Credit worthiness)
- Competitors (Relative performance of company)
How is capital calculated?
- Assets - Liabilities
What is capital?
- Money invested into a business at the start of a venture
What are assets?
- What a business owns or is owed to the business that is of economic value
What are liabilities?
- What a business owes or is owing that is of economic value
What is an income statement?
- Calculation of the result of the activities of a business for a particular period
What are the two parts that the income statement is split into?
- Trading account
- Profit and Loss
What does the trading account in an income statement calculate?
- Gross Profit/Loss
What does the Profit and Loss calculate in an income statement?
- Net Profit/Loss
What is a trading account?
- Statement that calculates the gross profit that a business has made by buying and selling its goods during a particular period of time
- goods bought for resale = purchases
- goods bought and sold = sales
What are goods that are bought and resold called?
- purchases
What are goods that are sold called?
- Sales
What/ how is gross profit calculated?
- difference between revenue and cost
- Sales - cost of good sold
- Same as revenue - cost of good sold
What does the Profit/Loss account within an income statement calculate?
- Net profit a business has made for a period of time
What is a statement of financial position?
- List of all liabilities, assets and capital
- Sets out financial position of organisation at particular date
- sometimes referred to as position statement
- Statement of financial position must balance (Capital = Assets - Liabilities) –> can be known as balance sheet
What are the two types of assets?
- Non-current assets
- Current assets
What are current assets?
- Assets which can last for shorter periods
- Cash in bank, stock…
What are non-current assets?
- Assets that are expected to have a life of more than one year
- premises…
What are the two types of liabilities?
- Current liabilities
- Non-current liabilities
What are non-current liabilities?
- Long term liabilities
- Debts owed by the business that are not due until after one year from the balance sheet date
What are current liabilities?
- Debts owed by the business that are payable within one year of the balance sheet date
What are the 5 components of costs of goods sold?
- Opening stock
- Add purchases
- Less returns out
- Add carriage in
- Less closing stock
