Week 2: Financial Statements

Nguyen Thu Huong (M.A) Wednesday 12.30pm B509

Email address

espcourse@gmail.com

Pwd: espftu09

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 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)

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.

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)

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 = creditors (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

Companys reserves (years 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

Companys 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
Source and Application of Funds Statement Overheads Tangible vs Intangible assets Current assets Debtors - Account receivable

Financial terms

Inventory

Long-term assets
Fixed assets Financial assets Goodwill Liabilities

Creditors Account payable

Financial terms

Shareholders funds / Net assets Book-keeping Daybooks / Journals / Ledgers Single-entry / Double-entry bookkeeping Companys market capitalization Trading revenues

Depreciation provisions
Consolidated accounts

Home work
Assets, liabilities and balance sheet (Vocabulary exercise) Listening 1 Listening 2

Preparing for next class

Stocks and Shares 1 Stocks and Shares 2 Bonds Doing business in the 21st century

Email address

espcourse@gmail.com Pwd: espftu09 Instructors email: iamup79@yahoo.com

Mobile: 0912 816 104

Thank you!