Flashcards on IGCSE Preparation of Financial Statements
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What are the basic financial statements?
The basic financial statements include the income statement, balance sheet, cash flow statement, and statement of changes in equity.
Define income statement.
An income statement presents the revenues, expenses, and resulting net income or net loss of a company within a specific period.
What is the purpose of a balance sheet?
A balance sheet shows the financial position of a company by presenting its assets, liabilities, and shareholders' equity at a specific point in time.
Explain the cash flow statement.
A cash flow statement provides information about the cash inflows and outflows of a company during a specific period, categorized into operating, investing, and financing activities.
What is meant by statement of changes in equity?
The statement of changes in equity reports the transactions that affect the ownership interest in a company, including changes in share capital, retained earnings, and other equity components.
Name three elements of the income statement.
The three elements of the income statement are revenues, expenses, and net income or net loss.
What does an asset represent on the balance sheet?
An asset represents something of value that a company owns or controls, which can be used to generate future economic benefits.
Differentiate between operating activities and investing activities in the cash flow statement.
Operating activities include cash flows from the primary operations of the company, while investing activities involve cash flows from the acquisition or disposal of long-term assets or investments.
What does shareholders' equity represent on the balance sheet?
Shareholders' equity represents the residual interest in the assets of a company after deducting liabilities. It represents the shareholders' ownership in the company.
How is net profit or loss calculated on the income statement?
Net profit or loss is calculated by subtracting total expenses from total revenues.
What is the formula for calculating operating profit?
Operating profit is calculated by subtracting operating expenses and cost of goods sold from net sales revenue.
Why is the cash flow statement important for financial analysis?
The cash flow statement helps in assessing the cash-generating ability of a company, its liquidity position, and its ability to meet financial obligations.
Define retained earnings.
Retained earnings are the accumulated profits of a company that have not been distributed to shareholders as dividends.
What is the purpose of the statement of changes in equity?
The statement of changes in equity explains the changes in shareholders' equity during a specific period, including the effects of net profit or loss, dividends, and share issuances or repurchases.
What is a liability on the balance sheet?
A liability represents an obligation of a company, usually to transfer assets or provide services to other entities in the future, as a result of past transactions.
How is gross profit calculated on the income statement?
Gross profit is calculated by subtracting cost of goods sold from net sales revenue.
What are the basic financial statements?
The basic financial statements include the income statement, balance sheet, cash flow statement, and statement of changes in equity.
Define income statement.
An income statement presents the revenues, expenses, and resulting net income or net loss of a company within a specific period.
What is the purpose of a balance sheet?
A balance sheet shows the financial position of a company by presenting its assets, liabilities, and shareholders' equity at a specific point in time.
Explain the cash flow statement.
A cash flow statement provides information about the cash inflows and outflows of a company during a specific period, categorized into operating, investing, and financing activities.
What is meant by statement of changes in equity?
The statement of changes in equity reports the transactions that affect the ownership interest in a company, including changes in share capital, retained earnings, and other equity components.
Name three elements of the income statement.
The three elements of the income statement are revenues, expenses, and net income or net loss.
What does an asset represent on the balance sheet?
An asset represents something of value that a company owns or controls, which can be used to generate future economic benefits.
Differentiate between operating activities and investing activities in the cash flow statement.
Operating activities include cash flows from the primary operations of the company, while investing activities involve cash flows from the acquisition or disposal of long-term assets or investments.
What does shareholders' equity represent on the balance sheet?
Shareholders' equity represents the residual interest in the assets of a company after deducting liabilities. It represents the shareholders' ownership in the company.
How is net profit or loss calculated on the income statement?
Net profit or loss is calculated by subtracting total expenses from total revenues.
What is the formula for calculating operating profit?
Operating profit is calculated by subtracting operating expenses and cost of goods sold from net sales revenue.
Why is the cash flow statement important for financial analysis?
The cash flow statement helps in assessing the cash-generating ability of a company, its liquidity position, and its ability to meet financial obligations.
Define retained earnings.
Retained earnings are the accumulated profits of a company that have not been distributed to shareholders as dividends.
What is the purpose of the statement of changes in equity?
The statement of changes in equity explains the changes in shareholders' equity during a specific period, including the effects of net profit or loss, dividends, and share issuances or repurchases.
What is a liability on the balance sheet?
A liability represents an obligation of a company, usually to transfer assets or provide services to other entities in the future, as a result of past transactions.
How is gross profit calculated on the income statement?
Gross profit is calculated by subtracting cost of goods sold from net sales revenue.