Description
It describes A brief reference book on balance sheet
CONTENTS
INTRODUCTION 1 THE BALANCE SHEET Use of Funds (Fixed Assets, Working Capital), Source of Funds, the balancing act, published format PROFIT AND LOSS ACCOUNT Profit is not cash, operating profit, financing costs, published format 35 APPENDIX ONE Jargon explained APPENDIX TWO Calculating depreciation 45
2
THE BUSINESS FINANCIAL MODEL Sources of Funds, Uses of Funds, making profit, summary CLASSIFICATION OF EXPENDITURE Why classify? Capital or Revenue? control FINANCIAL REPORTS Introduction
5 69
93 101
NB
41
This symbol refers the reader back to a previous section where the item or term has already been explained
THE BALANCE SHEET
INTRODUCTION
SHARE CAPITAL
LOAN CAPITAL
RETAINED PROFITS
SOURCE OF FUNDS USE OF FUNDS
FIXED ASSETS ie: FACILITIES & PROCESSES WORKING CAPITAL ie: PRODUCTS & SERVICES BALANCE SHEET Financial picture at a point in time
The Balance Sheet is:
G G
46
A financial statement of the business investment as at a specific point in time; and Reports at the specific point in time - where the money invested in the business came from SOURCE OF FUNDS - and how it is currently invested USE OF FUNDS
THE BALANCE SHEET
FORMAT
The Balance Sheet format swops the two halves of the model over:
G G
Use of Funds appears at the top of the statement Source of Funds appears at the bottom of the statement
Balance Sheet: ARC plc as at 31st December 200£ Use of Funds Fixed Assets Working Capital __________ __________ Source of Funds Share Capital Retained Profits Loan Capital
Hence ...
__________ __________
47
THE BALANCE SHEET
FIXED ASSETS
VALUATION OF FIXED ASSETS
Fixed Assets are: Facilities and Processes acquired for use in the business as a result of Capital Expenditure p20 Fixed Assets are valued on the Balance Sheet at
£
Cost, to include: purchase costs legal costs installation costs Less: Depreciation __________ ie: Net Book Value (or Written Down Value)
__________
48
THE BALANCE SHEET
FIXED ASSETS
DEPRECIATION OF FIXED ASSETS
By definition:
G G
Fixed Assets are used in the business for a period in excess of one year The cost of the Fixed Asset is considered significant given the scale of the business operation
Charging capital expenditure against profits in the year of purchase would unfairly penalise that year’s result and subsequent years, when the facility continued to be used, would not bear any of the cost. Therefore there needs to be a basis for apportioning the cost of the investment over the years which will benefit from its use. The resultant charge is called: DEPRECIATION
49
THE BALANCE SHEET
DEPRECIATION OF FIXED ASSETS
Depreciation is not applied to land (with the exception of quarries and mines).
It is applied to all other Fixed Assets:
50
THE BALANCE SHEET
WORKING CAPITAL
DEFINITION
The Funds used to provide the flow of materials, services and credit required to achieve the sales and satisfy customer needs. p23
G
Stock (Raw materials, Work in Progress and Finished Goods) Debtors/Receivables (Amounts owed by customers) Cash
G
G
}
}
CURRENT ASSETS
Less:
G
Creditors/Payables (Amounts owed to suppliers)
CURRENT LIABILITIES
51
Equals Working Capital
THE BALANCE SHEET
VALUATION OF WORKING CAPITAL
The values shown in the Balance Sheet are as follows: Stock
At the lower of cost and net realisable (ie: saleable) value - Allowances are made for slow-moving and redundant stock, etc At the sum expected to be collected - Bad debts are written off - Allowances are made for possible bad debts At face value At the sum expected to be paid
Debtors
Cash Creditors
52
£
THE BALANCE SHEET POCKETBOOK
doc_701293543.pdf
It describes A brief reference book on balance sheet
CONTENTS
INTRODUCTION 1 THE BALANCE SHEET Use of Funds (Fixed Assets, Working Capital), Source of Funds, the balancing act, published format PROFIT AND LOSS ACCOUNT Profit is not cash, operating profit, financing costs, published format 35 APPENDIX ONE Jargon explained APPENDIX TWO Calculating depreciation 45
2
THE BUSINESS FINANCIAL MODEL Sources of Funds, Uses of Funds, making profit, summary CLASSIFICATION OF EXPENDITURE Why classify? Capital or Revenue? control FINANCIAL REPORTS Introduction
5 69
93 101
NB
41
This symbol refers the reader back to a previous section where the item or term has already been explained
THE BALANCE SHEET
INTRODUCTION
SHARE CAPITAL
LOAN CAPITAL
RETAINED PROFITS
SOURCE OF FUNDS USE OF FUNDS
FIXED ASSETS ie: FACILITIES & PROCESSES WORKING CAPITAL ie: PRODUCTS & SERVICES BALANCE SHEET Financial picture at a point in time
The Balance Sheet is:
G G
46
A financial statement of the business investment as at a specific point in time; and Reports at the specific point in time - where the money invested in the business came from SOURCE OF FUNDS - and how it is currently invested USE OF FUNDS
THE BALANCE SHEET
FORMAT
The Balance Sheet format swops the two halves of the model over:
G G
Use of Funds appears at the top of the statement Source of Funds appears at the bottom of the statement
Balance Sheet: ARC plc as at 31st December 200£ Use of Funds Fixed Assets Working Capital __________ __________ Source of Funds Share Capital Retained Profits Loan Capital
Hence ...
__________ __________
47
THE BALANCE SHEET
FIXED ASSETS
VALUATION OF FIXED ASSETS
Fixed Assets are: Facilities and Processes acquired for use in the business as a result of Capital Expenditure p20 Fixed Assets are valued on the Balance Sheet at
£
Cost, to include: purchase costs legal costs installation costs Less: Depreciation __________ ie: Net Book Value (or Written Down Value)
__________
48
THE BALANCE SHEET
FIXED ASSETS
DEPRECIATION OF FIXED ASSETS
By definition:
G G
Fixed Assets are used in the business for a period in excess of one year The cost of the Fixed Asset is considered significant given the scale of the business operation
Charging capital expenditure against profits in the year of purchase would unfairly penalise that year’s result and subsequent years, when the facility continued to be used, would not bear any of the cost. Therefore there needs to be a basis for apportioning the cost of the investment over the years which will benefit from its use. The resultant charge is called: DEPRECIATION
49
THE BALANCE SHEET
DEPRECIATION OF FIXED ASSETS
Depreciation is not applied to land (with the exception of quarries and mines).
It is applied to all other Fixed Assets:
50
THE BALANCE SHEET
WORKING CAPITAL
DEFINITION
The Funds used to provide the flow of materials, services and credit required to achieve the sales and satisfy customer needs. p23
G
Stock (Raw materials, Work in Progress and Finished Goods) Debtors/Receivables (Amounts owed by customers) Cash
G
G
}
}
CURRENT ASSETS
Less:
G
Creditors/Payables (Amounts owed to suppliers)
CURRENT LIABILITIES
51
Equals Working Capital
THE BALANCE SHEET
VALUATION OF WORKING CAPITAL
The values shown in the Balance Sheet are as follows: Stock
At the lower of cost and net realisable (ie: saleable) value - Allowances are made for slow-moving and redundant stock, etc At the sum expected to be collected - Bad debts are written off - Allowances are made for possible bad debts At face value At the sum expected to be paid
Debtors
Cash Creditors
52
£
THE BALANCE SHEET POCKETBOOK
doc_701293543.pdf