Slide 1

Financial Accounts

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Not for now but later…

Some financial disasters to consider, just if you didn’t think thetopic was important…

Kodak

https://youtu.be/mNdAYqlKfqY

Olympus

https://youtu.be/UA-9qY-cBM8

Enron – two hour movie

https://youtu.be/gxzLX_C9Z74

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Financial Accounts

Culminating Activity – for next Sunday

To show your understanding of Financial Accounts you are toobtain the accounts of a PLC and then prepare a presentationthat analyses the company’s

Income Statement

Balance Sheet

Cash Flow Statement

Their overall financial position

Expectations:

List at least three pieces of information you would expect to findon each document

For each piece of information briefly explain why the informationis useful to stakeholders

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Key Accounting Documents

Public Limited Companies are required to publishtheir accounts

This will usually consist of three key accounting documents:

The Income Statement

Includes the Trading Account,

the Profit and Loss Account, and

the Appropriations Account)

The Balance Sheet

Sometimes referred to as “Statement of Financial Position”

The Cash Flow Statement

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Accounting Concepts

Users of Financial Accounts – what are the interestsof each of the following in the financial performanceof a company?

Managers -

Shareholders –

Governments –

Employees -

Suppliers -

Competitors –

In your notebooks write one sentence for eachstakeholder explaining the reason for their concern

The Income Statement

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The Income Statement

The income statement summarises the trading thathas taken place during a specific period

It calculates whether the business has made a netprofit or a net loss during the period

It is based upon the profit formula:

Profit = Total Revenue – Total Costs

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An Example

Money receivedfrom sellinggoods andservices

Money spent providingthe goods and servicessold (direct costs)

Money spent providingthe goods and servicessold (direct costs)

Profit or loss made beforeindirect costs are taken off

The indirect costs, or expenses that thebusiness has had to pay

Profit or loss available to the business after tax

The corporation taxthe business must pay

Profit or loss madebefore tax is taken off

The profit or loss fromtrading

Costs or revenue fromfinancial dealings

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The Main Final Accounts

Income Statement

Trading Account

Profit and Loss

The appropriations account

The Balance Sheet

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The Balance Sheet

May be referred to as “Statement of FinancialPosition”

The balance sheet is a snapshot of the assets andliabilities of a business

It shows the value of the resources within thebusiness, and how they were financed

A balance sheet must “balance” since the resourcesthat have been obtained must have been financed insome way

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An Example

Fixed assets that thebusiness has obtainedfor long-term use, e.g.premises

Items that the businesshas, but does notintend to keep longerthan 12 months. E.g.stock

The total value of things the business owns

Debts that the business intends to pay within the next12 months

The funds contributedinto the business bythe owners

The difference between totalassets and total liabilities

Long-term borrowing, e.g.a bank loan

The total valueof what abusiness owes

The Cash Flow Statement

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The Cash Flow Statement

Unlike a cash flow forecast, the cash flow statementis a factual document

It shows the flow of cash both into and out of thebusiness

Most businesses will only publish this document in asummary form

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An Example

The net amount ofcash flowing intoor out of abusiness from itstrading activity

The net amount of cashflowing into or out of abusiness from itsinvestment activity(i.e. buying or sellingfixed assets)

The net amount of cashflowing into or out of abusiness from itsinvestment activity(i.e. buying or sellingfixed assets)

Figures in bracketsshow cash outflows

The total increaseor decrease in cashwithin thebusiness

The net amount of cashflowing into or out of abusiness from itsactivity with banks orshareholders

The net amount of cashflowing into or out of abusiness from itsactivity with banks orshareholders

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Online Resources

Textbook on Moodle

The Times 100 has an excellent online book and listof pages

http://businesscasestudies.co.uk/business-theory/finance.html#accounts