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Finance

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by

Emmanuel Henriquez

on 31 March 2014

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Transcript of Finance

Finance
Presentation
Group 2

Profit & Loss
Account
Net Profit

Total Sale Revenues - Total Cost of running a business

Positive = Profit

Negative = Loss
Gross Profit

=
Total sales revenue
-
cost of sales
Costs of running a business
Cost of sales
Expenses
Expenses

Not directly related to each unit of products sold
heating, lighting
administrative cost
advertising
Balance Sheet
Plan
Budget
Accounts
Analyze
The
Financial
Cycle
Funding Sources
Profit
Income > Expenditure

Gross Profit
profit from selling items

Net Profit
profit made after paying expenses incurred

Retained Profit
profit kept in business after paying tax, partners, etc
A statement of the financial position of a business at a given moment in time

Summarises an organisation's assets. equity and liabilities at a specific point in time

Two normal types
report form
account form
A Personal Balance Sheet
current assets
long-term assets
current liabilities
long-term liabilities
personal net worth

A Small Business Balance Sheet
current assets
fixed assets
intangible assets and liabilities
accrued expenses
long-term debt
contingent liabilities

Profit
excess of income over expenditure

Debtors
money owed TO our business

Creditors
business which are owned money BY our business

Assets
bought/owned by a business
help generate a profit

Liability
money due to be paid within a period of time
Why is balance sheet so important?
represents a company's financial position on a particular day of the fiscal year

part of the annual report and other documents released by the company

complying by the law, tax rules and so on...
Cost of sales
=
Opening stock
+
purchase
-
Closing stock
Personal Funds
Friends &
Family
Retained Earnings
Grants & Awards
Business Loans
Sources of
Funding

Cash Flow
Business Overdraft
Investors
in order to run a business effectively
Revenue (income)
Cash sales
Credit sales
Interest
Lease
Tax

Expenses
Wages
Raw materials
ulitily bills
Advertising
What is cash flow?
Cash flow
A firm's cash flow is the movement of cash in and out of the firm
In the form of:
1. Payments to suppliers,

2. Collections from customers
typically arise from three sources

Operations
Investing
Financing

how much profit or loss a company is making
Costing
Cost accounting:
Describes the process of identifying and accumulating the costs of business operations in a way that is helpful in valuing stock and in identifying the costs and profitability of different departments or divisions of a business.
(Gowthorpe, C ,2005 ch14, pp 326/7)
Example: The costing of goods
Raw materials
Assets
Machinery
Bills (utility)
Cost Accounting
involves analyzing & recording business costs so that it is possible to:
Value stocks
Set retail prices
Make business decisions

Concerned with total cost and unit cost

Total cost = unit cost x no. of units
Cost Classifications
Product Costs Vs. Period Costs

Product costs
- are costs assigned to the manufacture of products and recognized for financial reporting when sold.
Example
: materials, direct labor, factory wages, factory depreciation, etc.
Period costs
- are on the other hand are all costs other than product costs.

Example
: Marketing costs and administrative costs, etc.

Breakup of Product Costs
The product costs are further classified into:

Direct materials:
Represents the cost of the materials that can be identified directly with the product at reasonable cost. For example, Transistors, Resistor.

Direct labor
: Represents the cost of the labor time spent on that product, for example cost of the time spent to assemble and test etc.

Manufacturing overhead
: Represents all production costs except those for direct labor and direct materials, for example the cost of an accountant's time in an organization, depreciation on equipment, electricity, fuel, etc.

Another way of looking at costs is to think about them as Fixed and Variable Costs

– Fixed costs – do not vary regardless of production volumes – e.g. Rent, Rates
– Variable costs – increase proportionately with the rate of production – e.g. Raw materials, Labour
– Stepped costs – increase proportionately at various levels of production e.g. Supervisor salary

Referencing

http://www.barclays.co.uk/Businessmanagement/SmallbusinessfundingfromBarclays/P1242559800353
http://www.bbc.co.uk/programmes/b006vq92
http://www.s-cool.co.uk/a-level/business-studies/company-accounts/revise-it/profit-and-loss-account

http://www.learnmanagement2.com/profitandlossaccount.htm

https://www.google.co.uk/search?q=money+with+question+mark&hl=en&source=lnms&tbm=isch&sa=X&ei=rGcHU73tM4uKhQfH_YG4Dg&ved=0CAkQ_AUoAQ#facrc=_&imgdii=_&imgrc=2VSXzl3_7Xz_GM%253A%3B6t_IuOyOhxBI-M%3Bhttp%253A%252F%252Fblog.lib.umn.edu%252Fcspg%252Felectionacademy%252Fimages%252Fquestion.mark.money.jpg%3Bhttp%253A%252F%252Fblog.lib.umn.edu%252Fcspg%252Felectionacademy%252F2013%252F06%252Fidaho_election_costs_fun_with.php%3B296%3B296
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