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What does a net profit indicate in an Income Statement?
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The surplus remaining after all expenses have been deducted from total revenues over a period.
For the example company Tealicious, what were the reported total assets and total equity at the end of the financial year?
Total assets were $169 million, and total equity was $129.5 million.
What is the primary purpose of financial statements?
To summarize the activities and financial performance of a business, providing insights into its financial health for investors and lenders.
What alternative name is given to the Balance Sheet?
The Statement of Financial Position.
According to the accounting equation, what is the relationship between assets, liabilities, and equity?
Assets = Liabilities + Equity.
How often are financial statements typically prepared?
At the end of each accounting period.
What does the Cash Flow Statement indicate when using the accrual accounting method?
It shows cash inflows and outflows over a period of time, which is crucial because profit does not equal cash flow with accrual accounting.
What are the three main sections of a Cash Flow Statement?
Operating Activities, Investing Activities, and Financing Activities.
What is typically included in the 'Operating Activities' section of the Cash Flow Statement?
Regular business activities such as revenue from sales and payments for expenses.
What does equity comprise in a balance sheet?
It includes original capital contributions and retained earnings.
How is an Income Statement structured?
It has a header stating the period covered and a body summarizing revenue earned and expenses incurred over that period.
What does the term 'net increase in cash' refer to in a Cash Flow Statement?
The difference between the closing and opening cash balances over the specified period.
What are the three main financial statements highlighted in the overview?
The Balance Sheet, Income Statement, and Cash Flow Statement.
How does accrual accounting differ from cash accounting in terms of revenue and expenses?
Accrual accounting recognizes revenue and expenses when they are earned or incurred, regardless of cash transaction timing, whereas cash accounting records them when cash exchanges hands.
Why is it important for a Cash Flow Statement to reconcile with the Balance Sheet?
To ensure that the opening and closing cash balances match the movements reported on the balance sheet, ensuring consistency and accuracy in financial reporting.
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