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8/2/2019 U4 Financial Statements
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Financial Statements
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Financial Statements
Provide an overview of a business'
financial condition in both short andlong term.
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Financial Statements
Profit and Loss Account
Balance sheet
Source and Application of Funds
Statement
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Profit and Loss Account
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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Profit and Loss Account
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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Source & Application of Funds
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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Source & Application of Funds
Statement
Sources of funds include:
Trading revenues,
Depreciation provisions,
Borrowing,
The sale of assets, andThe issuing of shares.
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Source & Application of Funds
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
Profit and Loss Account
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