Financial accounting

Financial accounting

1. Income statement (1 year period). Revenue and expenditure. Revenue - amount of money a company generates from sales. Expenditure - expenses incurred to run the business (suppliers, employees, rental). Total Rev - Total expenses = profit (before tax). Need to than pay tax so minus tax from profit = net profit. Pay out a dividend? Deduct it after profit = net profit. Retained income = net profit

2. Accrual basis of accounting. If you experience expenses at a particular point in time you need to accrue them in the year you enter the transaction and not within the subsequent period.Eg laptops. Look at underlying transaction and see whether it has taken place or not (supersedes legal docs such as invoicing)

3. Financial Ratio Analysis. Takes the financial statements and pulls out KPI's: 1. Take a snapshot of whether a co is getting better or worse or staying the same. 2. Compare the performance of a co over a period of time. 3. We also use them to benchmark.