Financial Accounts Not for now but later… Some financial disasters to consider, just if you didn’t think the topic was important… Kodak Olympus Enron – two hour movie

Financial Accounts Culminating Activity – for next Sunday  To show your understanding of Financial Accounts you are to obtain the accounts of a PLC and then prepare a presentation that analyses the company’s obtain the accounts  Income Statement  Balance Sheet  Cash Flow Statement  Their overall financial position Expectations:  List at least three pieces of information you would expect to find on each document  For each piece of information briefly explain why the information is useful to stakeholders

Key Accounting Documents Public Limited Companies are required to publish their accounts This will usually consist of three key accounting documents: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

Accounting Concepts Users of Financial Accounts – what are the interests of each of the following in the financial performance of a company? Users of Financial Accounts  Managers -  Shareholders –  Governments –  Employees -  Suppliers -  Competitors – In your notebooks write one sentence for each stakeholder explaining the reason for their concern

The Income Statement

The income statement summarises the trading that has taken place during a specific period It calculates whether the business has made a net profit or a net loss during the period It is based upon the profit formula: Profit = Total Revenue – Total Costs

An Example Money received from selling goods and services Money spent providing the goods and services sold (direct costs) Profit or loss made before indirect costs are taken off The indirect costs, or expenses that the business has had to pay Profit or loss available to the business after tax The corporation tax the business must pay Profit or loss made before tax is taken off The profit or loss from trading Costs or revenue from financial dealings

The Main Final Accounts Income Statement  Trading Account  Profit and Loss  The appropriations account

The Balance Sheet

May be referred to as “Statement of Financial Position” The balance sheet is a snapshot of the assets and liabilities of a business It shows the value of the resources within the business, and how they were financed A balance sheet must “balance” since the resources that have been obtained must have been financed in some way

An Example Fixed assets that the business has obtained for long-term use, e.g. premises Items that the business has, but does not intend to keep longer than 12 months. E.g. stock The total value of things the business owns Debts that the business intends to pay within the next 12 months The funds contributed into the business by the owners The difference between total assets and total liabilities Long-term borrowing, e.g. a bank loan The total value of what a business owes

The Cash Flow Statement

Unlike a cash flow forecast, the cash flow statement is a factual document It shows the flow of cash both into and out of the business Most businesses will only publish this document in a summary form

An Example The net amount of cash flowing into or out of a business from its trading activity The net amount of cash flowing into or out of a business from its investment activity (i.e. buying or selling fixed assets) Figures in brackets show cash outflows The total increase or decrease in cash within the business The net amount of cash flowing into or out of a business from its activity with banks or shareholders

Online Resources Textbook on Moodle The Times 100 has an excellent online book and list of pagesonline book theory/finance.html#accounts theory/finance.html#accounts