balance sheet & income statement

• Statement of Comprehensive Income


  Financial document showing a firm's profit at the end of the financial year
• Statement of Comprehensive Income


  • Shows the income and expenses of a business during the financial year
  • Layout is important and must be presented in a standard way
• Revenue


  Money received by a business from selling its products or services
• Cost of Sales


  Costs incurred by a business in producing the goods or services it sells
• Gross Profit


  Profit made before the subtraction of general expenses or overheads
• Administrative Expenses


  General overheads or expenses of the business
• Other Operating Expenses


  Expenses not included in administrative expenses
• Operating Profit


  Profit generated from the firm's main activities, excluding income from financial investments
• Finance Costs


  Interest paid on money borrowed by the business
• Profit for the Year


  Profit before taxation
• Profit for the Year After Tax


  Profit remaining after all expenses, including taxation, have been subtracted from revenue
• The statement of comprehensive income shows figures for both the current year and the previous year to allow comparisons over time
• Profit is the driving force in most businesses and is important as a measure of business performance
• Normal Profit


  Minimum financial reward an entrepreneur must receive to maintain interest in a business
• Profit levels affect the flow of money into and out of different industries
• Small businesses may not produce a formal statement of comprehensive income, but limited companies are required to do so by law
• Statement of financial position


  Summary at a point in time of business assets, liabilities and capital (often called the balance sheet)
• Assets


  Resources used or owned by a business, such as cash, stock, machinery, tools and equipment
• Liabilities


  Debts of the business, which provide a source of funds
• Capital


  Finance provided by the owners of the business
• In a statement of financial position, the value of assets (what a business uses or owns) will equal the value of liabilities and capital (what the business owes)
• This is because all resources purchased by a business have to be financed from either capital or liabilities
• Tesco's assets and liabilities


  • Assets: £43,904 million, including £17,600 million in property, plant and equipment

  Liabilities: £35,200 million, including £10,711 million owed to banks and other financial institutions
• Calculating Tesco's capital


  Capital = Assets - Liabilities
• Non-current assets


  Assets that will not be changed into cash within a year
• Current assets


  Assets that will be changed into cash within one year, such as inventories, trade receivables, and cash
• Current liabilities


  Debts that have to be paid within a year, such as trade payables, taxation, leases and hire purchase, and short-term loans and overdrafts
• Net current assets


  Current assets minus current liabilities, also known as working capital
• Non-current liabilities


  Debts that are payable after 12 months, such as mortgages and other long-term borrowings
• Net assets


  Value of all assets less the value of all liabilities, total at the bottom of the first part of the balance sheet
• Shareholders' equity


  The capital of the business, including share capital and reserves, shown in the bottom section of the statement of financial position