accounting. raising capital how can businesses raise capital? is there a difference in how...
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Raising capital
How can businesses raise capital? Is there a difference in how incorporated and
unincorporated businesses raise capital? Define assets and liabilities.
Read the text (RB, p. 69) and then…1. Underline the key words in the text.
2. Find a definition for:• liabilities• assets• working capital / funds
3. Explain the difference between
buying something on credit and
buying something on a loan
4. Write a sentence with owe and one with own.
Financial reporting and the annual reportRead the text (p. 70) and find words for these terms:
making payments receiving money the place where financial
transactions are recorded a book of accounts people who owe money to your
company people to whom your company
owes money
expenditure income an account
a ledger debtors
creditors
The balance sheet
What are the two parts of the balance sheet? Explain what each part consists of. Why are debtors assets and creditors liabilities? Draw up the key formula/ equation for the
balance sheet. Why is it called a “balance sheet”?
The left and right sides must be equal, i.e, balance!
The balance sheet
Shows: what a company o___ and what it o___ on a particular
____ (usually the last day of its financial year). Purpose: a “snapshot” of the firm’s ______ strength. Key equation: Assets = Liabilities + Owner’s Equity
The balance sheet
Shows: what a company owes and what it owns on a
particular date (usually the last day of its financial year).
Purpose: a “snapshot” of the firm’s financial strenght. Key equation: Assets = Liabilities + Owner’s Equity
The equation explained
Assets = Liabilities + Owner’s equity
Owner’s equity can also be called the capital of the company.
The equation shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity).
Tasks
Read RB, p. 72/VI What types of assets are mentioned in the
text? Define them. Explain the difference between the listed
categories. Why are intangible assets not included in the
balance sheet? Read RB, p 72/VII What are the two types of liabilities called?
Find English terms in the text (p. 72/VII) for these Croatian terms: odgođeni porez kratkoročne obveze dugoročne obveze obveznice obračunati, a neplaćeni
rashodi vjerovnici
deferred taxes current liabilities long-term liabilities bonds accrued expenses
accounts payable (or creditors)
The P & L account
Shows: profit e____ and losses m____ over a p____
of time. Purpose: Calculate p_____, summarise the p_____of
the company. Key equation: Profit = Revenue – Costs
The P & L account
Shows: profit earned and losses made over a period
of time. Purpose: Calculates profits, summarises the
profitability of the company. Key equation: Profit = Revenue – Costs
Read about the P&L account and find the terms for these definitions The total amount of money received
during a specific period. The costs associated with making the
products that have been sold. Sales revenue – COGS Operating expenses The bottom line The decreasing the value of a
tangible asset in an account due to age, use, wear and tear.
Intangible assets with limited life have to be written off over the period they were purchased for.
turnover
COGS
gross profit SG&A net profit depreciation
amortization
Types of earnings: Put them in order according to size.
Net profit Earnings Before Interest and Tax (EBIT) Reserves EBITDA (Operating profit) Gross profit Total sales revenue (turnover, top line)
Types of earnings: Put them in order according to size.
1. Total sales revenue (turnover, top line)
2. Gross profit
3. EBITDA (Operating profit)
4. Earnings Before Interest and Tax (EBIT)
5. Net profit (bottom line)
6. Reserves
The cash flow statement
Shows cash i____ (s___ of funds) and cash o___
(a___ of funds) divided into 3 types of activities:
o_____, f______, i______
Purpose: indicator of the firm’s l___.
The cash flow statement
Shows cash inflows ( sources of funds) and cash
outflows ( applications of funds) divided into 3 types of activities:
Operating, financing, investing
Purpose: indicator of the firm’s liquidity.
Make two groups out of the following terms:
Sources of funds, taxes, running expenses, sale of assets, trading profits, trading losses, applications of funds, interest payments, purchases of assets, cash inflows, borrowed funds, cash outflows, funds from issuing of shares, repayment of loans, dividends
Make two groups out of the following terms:
Sources of funds- cash inflows
funds from issuing of shares,
trading profits, borrowed funds sale of assets
Applications of funds – cash outflows
purchases of assets running expenses trading losses interest payments, repayment of loans taxes dividends
Revision: the three financial statementsMatch up the financial statement with the term that describes its purpose
1. P&L account
2. Balance sheet
3. Cash flow statement
A. liquidity
B. profitability
C. the company’s financial position
Put the following terms into 3 groups based on the financial statement they describe:
Profit earned, operations, point in time, period of time, cash inflow, assets, sources of funds, profit, liabilities, owners’ equity, cash outflow, creditors, revenue, financing, turnover, applications of funds, losses made, debtors, cost, owe, liquidity, own, cash deficit, financial position of the company, cash surplus, profitability, investing
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PROFIT AND LOSS ACCOUNT Period of time, profitability, profit earned – losses made, turnover Profit= Revenue – Costs BALANCE SHEET Point in time, financial position of the company creditors - debtors, owe - own, Assets = liabilities + owners’ equity CASH FLOW STATEMENT Period of time, liquidity cash inflow – cash outflow, sources of funds –
applications of funds Cash deficit – cash surplus Operating, financing, investing activities