Maintaining Financial Records

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    • Financial Records allow businesses to track their success and help minimise risk, including:
      1. To make inform decision making
      2. To fulfil legal requirements
      3. To meet tax obligations
      4. To obtain funding or loans
      5. To enable business owners to manage their cash flow.
    • Profit & Loss statements (income statement)
      • summary of the income earned and the expenses calculated
      • Allows business owners to see how much exact money has gone into the business (revenue), how much has gone out (expenditure) and how much can be derived as profit.
      Steps:
      1. Record the revenue (income)
      2. Record the cost of goods sold (inventory sold to customers)
      3. Calculate gross profit (revenue - cost of goods sold)
      4. Record and total the expenses (costs for running the business, e.g rent, electricity)
      5. Calculate the net profit or gloss (gross profit - expenses)
    • Balance Sheets:
      • Shows the financial position of a business at a particular time
      • Value of assets:
      1. Current assets - used up or change value within a year
      2. Non-current assets - last longer than a year
      • Value of liabilities
      1. Current - repaid in less than a year
      2. Non-current - repaid in longer than a year
      • Owners equity - value of the business to the owners
      = Balance sheets should always be balanced - sum of assets must total the sum of liabilities and owners equity (assets = liabilities + owners equity)
    • Cash Flow
      • A cash flow statement indicates the movement of: cash receipts (inflows - e.g money from sales) and cash payments (outflows - e.g payments for expenses)
      • A business is able to calculate its surplus or deficiet of cash = indicates a business' liquidity (the ability for a business to pay its short-term debts on time)