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Page 1

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Chapter 3

Using Financial
data to measure
and assess

Page 2

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Key Terms
· Balance sheet: a document describing the financial position of a company at a particular point in
time, by company the items owned by the organisation (assets) with the amounts that it owes
· Income statement: an account showing the income and expenditure of a firm over a…

Page 3

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Balance sheet - Elements
· Assets
­ Items that are owned by an organisation
­ Non-current assets.
· Resources that can be used repeatedly in the production process, although
they do wear out or lose value.
· I.e. Land, Buildings, machinery, vehicles etc.
· Tangible assets
­ Non current assets…

Page 4

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Balance sheet - Elements
· Liabilities
­ Owed by an organisation
­ Non-Current liabilities
· Debts due for repayment after more than one year.
· Long-term to medium loans
· Debentures
­ Fixed interests loans with a set repayment date
­ Current liabilities
· Debts scheduled for less than one…

Page 5

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Balance sheet - Elements
· Capital
­ Most reserves arise because shareholders have voted at the
annual general meeting to allow the firm to keep some of
the profit, rather than distribute to shareholders.
­ Share capital
· Funds provided by shareholders throughout the purchase of shares
­ Reserves and…

Page 6

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Balance Sheet - Purposes
· Recognising the scale of a business
­ Adding non-current assets to working capital gives an overall view of
the capital employed by a business and thus its overall worth
· Calculating the net assets of a business
­ The balance sheet show the worth of…

Page 7

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Balance Sheet - equations

Page 8

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Capital Expenditure, revenue
expenditure and depreciation
· Classifying business expenditure
­ Business expenditure can be classified as either
revenue expenditure or capital expenditure
­ Capital expenditure exists when the spending is on
an item that will be used time and time again. For
accounting purposes, if the expenditure on an…

Page 9

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The significance of the distinction between
capital and revenue expenditure
· When constructing accounts, accountants follow certain agreed principles.
On of the basic rule of accounting is the matching or accruals concept. This
states that, when calculating a firm's profit, any income should be matched
to the expenditure involved in…

Page 10

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The significance of the distinction between
capital and revenue expenditure
· For capital expenditure the situation is very different. Fixed assets are used
over a long period, so any capital expenditure needs to be spread over the
lifetime of the fixed asset in order to `match' the spending to the…


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