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Transcript of Finance
Profit & Loss
Total Sale Revenues - Total Cost of running a business
Positive = Profit
Negative = Loss
Total sales revenue
cost of sales
Costs of running a business
Cost of sales
Not directly related to each unit of products sold
Income > Expenditure
profit from selling items
profit made after paying expenses incurred
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
A Personal Balance Sheet
personal net worth
A Small Business Balance Sheet
intangible assets and liabilities
excess of income over expenditure
money owed TO our business
business which are owned money BY our business
bought/owned by a business
help generate a profit
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
Grants & Awards
in order to run a business effectively
What is 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
how much profit or loss a company is making
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
involves analyzing & recording business costs so that it is possible to:
Set retail prices
Make business decisions
Concerned with total cost and unit cost
Total cost = unit cost x no. of units
Product Costs Vs. Period Costs
- are costs assigned to the manufacture of products and recognized for financial reporting when sold.
: materials, direct labor, factory wages, factory depreciation, etc.
- are on the other hand are all costs other than product costs.
: Marketing costs and administrative costs, etc.
Breakup of Product Costs
The product costs are further classified into:
Represents the cost of the materials that can be identified directly with the product at reasonable cost. For example, Transistors, Resistor.
: Represents the cost of the labor time spent on that product, for example cost of the time spent to assemble and test etc.
: 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