u4 financial statements

8/2/2019 U4 Financial Statements

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Financial Statements


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Provide an overview of a business'

financial condition in both short andlong term.


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Profit and Loss Account

Balance sheet

Source and Application of Funds

Statement


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Shows revenue and expenditure

Gives figures for:

Total sales or turnover

Costs and overheads


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Overheads

Refer to an ongoing expense of operating

a business, but do not directly generate

profits.

Include accounting fees, advertising,

depreciation, insurance, interest, legal fees,

rent, repairs, supplies, taxes, telephone bills,

travel and utilities costs.


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Total sales / Turnover / Revenue

(Promotion)

Net sales

(Sales costs / Cost of goods sold)

Gross profit(Total expenses: SG&A expenses, etc)

Net profit before tax

(Tax)Net profit after tax

Dividends

Retained profit (to reinvest or reserve)


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SG&A

Selling: Cost of Sales, which includes salaries,

advertising expenses, cost of manufacturing,

rent, and all expenses and taxes directly related

to producing and selling product General: General operating expenses and taxes

that are directly related to the general operation

of the company, but don't relate to the other twocategories.

Administration: Executive salaries and general

support and all associated taxes related to the

overall administration of the company


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Balance Sheet

Shows the financial situation of the

company on a particular date (generally

the last day of its financial/fiscal year)

Lists:

1. Companys assets,2.Liabilities, and

3. Shareholders funds.


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Balance Sheet

1. Companys assets: everything of value that

is owned by a person or company. Include:

Cash investments + Property (buildings,

machines, etc.)

Debtors: money owed by customers

(account receivable)


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Assets

Current assets include money in bank,

cash at vault, investments, money owed

by customers, inventory.

Long-term assets: fixed assets (buildings,

equipment, machines), financial assets,

investment property, intangible assets .


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Assets

Intangible assets are nonphysical resources

and rights that have a value to the firm

because they give the firm some kind of

advantage in the market place.

Examples are goodwill, copyrights,

trademarks, patents and computerprograms.


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Balance Sheet

2. Liabilities = creditor (account payable),

consist of the money that a company will

have to pay to someone else, such as

taxes, debts, interest, mortgage

payment, suppliers.


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Balance Sheet

3. Shareholders funds:

Share capital

Share premium

Companys reserves (years retained profits)


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Book-keeping

Is the recording of the value of asset,

liabilities, income, and expenses in the

daybooks,journals, and ledgers, in which

debit and credit entries are chronologically

posted to record changes in value.


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Book-keeping

Daybook is a descriptive and diary-like

record of day-to-day financial transactions.

Journalis a formal and chronological record

of financial transactions before their values

are accounted in general ledger as debits

and credits.

Ledgeris a record of accounts, eachrecorded individually (on a separate page)

with its balance.


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Book-keeping

Debit and credit: respectively represent a

reduction of liability in asset, and the other

representing a balancing increase in liabilityor reduction of asset.

Debit: A debit is recorded on the left hand

side of a T account

Credit: A credit balance is recorded on the

right hand side of a 'T' account


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Book-keeping

Single-entry bookkeeping system also

single-entry accounting system is a one sided

accounting entry to maintain financialinformation.

Double-entry bookkeeping means each txn

is recorded in two accounts: one is debitedand the other is credited, so that the total

debits of the transaction equal to the total

credits.


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Double-entry bookkeepingAssets = Liabilities + Owners/Shareholders Equity

Assets Liabilities = Shareholders EquityShareholders Equity = Net Assets

Companys market capitalization is

Total share value = Shares No. * Market price


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Source & Application of Funds

Statement

Different names:

The sources and uses of funds statement

The funds flow statement

The cash flow statement

The movements of funds statementThe statement of changes in financial

position


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Statement

Shows the flow of cash IN and OUT of the

business between balance sheet dates. Includes:

Sources of Funds, andApplication of Funds


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Statement

Sources of funds include:

Trading revenues,

Depreciation provisions,

Borrowing,

The sale of assets, andThe issuing of shares.


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Statement

Applications of funds include:

The purchase of fixed or financial assets,

The payment of dividends,

The repayment of loans, andTrading losses (in a bad year).


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Consolidated Accounts

If a company has a majority interest in other

companies, the balance sheets and profit

and loss accounts of the parent company

and the subsidiaries are normally

combined in consolidated accounts.


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Financial terms


Balance sheet

Cash flow statementSG&A, Income, Interest expenses

Overheads

Utility costs

Tangible vs Intangible assets


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Financial terms

Current assets

Inventory

Cash in vault Long-term assets

Fixed assets

Financial assets

Debtors - Account receivable


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Financial terms

Investment property

Goodwill

Liabilities

Creditors Account payable

Mortgage payment

Shareholders funds / Net assets / Owner

Equity / Shareholders Equity


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Financial terms

Share capitalShare premium

Reserve / retained profit

Book-keeping

Daybooks / Journals / Ledgers

Single-entry / Double-entry bookkeepingCompanys market capitalization


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Financial terms

Sources of fund

Trading revenues

Depreciation provisionsBorrowing

The sales of assets

The issuing of shares

Applications of fund


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Financial terms

The purchase of fixed or financial assets,

The payment of dividends,

The repayment of loans, and Trading losses (in a bad year).

Consolidated accounts

Major interest

Parent vs Child company

u4 financial statements

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