financial statement
DESCRIPTION
TRANSCRIPT
Financial Statements
Financial Statements
Provide an overview of a business'
financial condition in both short
and long term.
Financial Statements
Profit and Loss Account
Balance sheet
Source and Application of Funds
Statement
Profit and Loss Account
Shows revenue and expenditure
Gives figures for:
Total sales or turnover
Costs and overheads
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.
Profit and Loss AccountTotal 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)
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 two categories.
Administration: Executive salaries and general support and all associated taxes related to the overall administration of the company
Balance Sheet
Shows the financial situation of the
company on a particular date (generally
the last day of its financial/fiscal year)
Lists:
1. Company’s assets,
2. Liabilities, and
3. Shareholders’ funds.
Balance Sheet
1. Company’s 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)
Assets
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 .
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 computer
programs.
Assets
Goodwill reflects the ability of the entity to
make a higher profit than would be derived
from selling the tangible assets.
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.
Balance Sheet
3. Shareholders’ funds:
Share capital
Share premium
Company’s reserves (year’s retained profits)
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.
Book-keeping
Daybook is a descriptive and diary-like record of day-to-day financial transactions.
Journal is a formal and chronological record of financial transactions before their values are accounted in general ledger as debits and credits.
Ledger is a record of accounts, each recorded individually (on a separate page) with its balance.
Book-keeping
Debit and credit: respectively represent a
reduction of liability in asset, and the other
representing a balancing increase in liability
or 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
Book-keeping
Single-entry bookkeeping system also single-entry accounting system is a one sided accounting entry to maintain financial information.
Double-entry bookkeeping means each txn is recorded in two accounts: one is debited and the other is credited, so that the total debits of the transaction equal to the total credits.
Double-entry bookkeeping
Assets = Liabilities + Owners’/Shareholders’ Equity
Assets – Liabilities = Shareholders’ Equity
Shareholders’ Equity = Net Assets
Company’s market capitalization is
Total share value = Shares No. * Market price
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 statement
The statement of changes in financial
position
Source & Application of Funds Statement
Shows the flow of cash IN and OUT of the
business between balance sheet dates.
Includes:
Sources of Funds, and
Application of Funds
Source & Application of Funds Statement
Sources of funds include: Trading revenues, Depreciation provisions, Borrowing, The sale of assets, and The issuing of shares.
Source & Application of Funds Statement
Applications of funds include:
The purchase of fixed or financial assets,
The payment of dividends,
The repayment of loans, and
Trading losses (in a bad year).
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.
Financial terms
Profit and Loss Account
Balance sheet
Cash flow statement
SG&A, Income, Interest expenses
Overheads
Utility costs
Tangible vs Intangible assets
Financial terms
Current assets
Inventory
Cash in vault
Long-term assets
Fixed assets
Financial assets
Debtors - Account receivable
Financial terms
• Investment property
Goodwill
Liabilities
Creditors – Account payable
Mortgage payment
Shareholders’ funds / Net assets / Owner
Equity / Shareholders’ Equity
Financial terms
Share capital
Share premium
Reserve / retained profit
Book-keeping
Daybooks / Journals / Ledgers
Single-entry / Double-entry bookkeeping
Company’s market capitalization
Financial terms
Sources of fund
Trading revenues
Depreciation provisions
Borrowing
The sales of assets
The issuing of shares
Applications of fund
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