Lecture 3 - Accounting and Finance Fundamentals.

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  • Created by: Ijmistry1
  • Created on: 16-11-21 11:44
How does statement of cash flows provide information to decision makers?
1. Helps in evaluating the entity's financial structure and ability to meet its obligations

2. Helps the decision makers to understand where money is coming from and where it is being spent

3. Helps investors when making economic decisions
1 of 15
Explain the purpose of csh flow statements
1. This summarises cash inflows and outflows of a business during a given period of time

2. Basically and analysis of the business' cash (and cash equivalents movements for the period)
2 of 15
Explain in detail accruals convention
1. This recognises revenues and expenses when they are earned or incurred rather when the money is received or paid

2. According to accruals convention, costs concerning a future period must be carried forward as a prepayment for that period and not char
3 of 15
Explain the uses of income statement
Helps in providing information on:

1. Financial performance

2. How and where profits might be increased

3. Financial control
4 of 15
Explain the form of an income statement
Part 1: This shows the calculation for gross profit

Part 2: Shows operating profit or how much profit has been made from the normal activities of the business. Does not take account income or expenses from other activities

3. Shows the calculation for
5 of 15
What are the elements to expenses called
Operating expenses and non-operating expenses
6 of 15
Give examples of operating expenses
1.Cost of goods sold
2. Insurance
3. Light and heat
4. Rent
5. Wages and salaries
6. Motor Vehicle running expenses
7 of 15
Examples of non-operating expenses
1. Interest expense on loans
2. Losses on disposal of non-current assets
8 of 15
Explain in detail non-operating income (an element of income) and give examples
1. These are gains from transactions other than normal trading activity

Examples include: interest income receivable
profits on disposal of non-current assets such as selling motor vehicles and equipment
9 of 15
Explain in detail expenses (part of operating income formula) and give examples
1. Opposite of income

2. Decrease in economic benefit as a result of normal trading activity

3. Two types: those arising from ordinary business and non-operating losses from transactions other than normal trading activty
10 of 15
Explain in detail non-operating income (an element of income and give examples)
1. These are gains from transactions other than normal trading activity

2. Examples include:

interest income receivable
Profits on disposal of non-current assets such as selling motor vehicles and equipment
11 of 15
Explain in detail Revenue, or sales (an element of income and give examples)
1. This is what the business earns from the sale of goods or provision of services (normal trading activity)

Examples include:

Sales of goods
Feeds for services subscriptions
12 of 15
How many elements are there to income and what are these called
Two elements

Called: revenue or sales. from trading or from non-operating income which are gains from transactions other than normal trading activity
13 of 15
Explain in detail income statement
1. This statement summarises the financial performance over a specific period

2. Tells us how the company is doing in terms of generating sales revenue, expenses and profitability over a specified period

3. Shows revenue, expenses and profit (or loss)
14 of 15
Income is defined as what?
An increase in economic benefit from revenue and gains during the period
15 of 15

Other cards in this set

Card 2

Front

Explain the purpose of csh flow statements

Back

1. This summarises cash inflows and outflows of a business during a given period of time

2. Basically and analysis of the business' cash (and cash equivalents movements for the period)

Card 3

Front

Explain in detail accruals convention

Back

Preview of the front of card 3

Card 4

Front

Explain the uses of income statement

Back

Preview of the front of card 4

Card 5

Front

Explain the form of an income statement

Back

Preview of the front of card 5
View more cards

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