Statement of Profit or Loss and Financial Position Review

These flashcards cover key vocabulary and concepts related to the statement of profit or loss and the statement of financial position as discussed in the lecture.

Statement of Profit or Loss

A financial statement that shows a company's revenues and expenses over a specific period, resulting in net profit or loss.

Gross Profit

The difference between sales revenue and the cost of goods sold (COGS). Calculated as sales minus purchases.

Net Profit

The final profit figure after all expenses have been deducted from gross profit.

Trial Balance

A summary of all debits and credits in the ledger accounts, used to verify that total debits equal total credits.

Capital Account

An account that records the owner’s equity in the business, including initial capital introduced and retained earnings.

Drawings

Funds taken out of a business by its owner for personal use, which reduce the owner’s equity.

Non-current Assets

Long-term investments or property that a company owns and uses in its operations.

Current Assets

Assets that are expected to be converted into cash or consumed within one year.

Accounting Ratios

Metrics calculated from financial statements to evaluate the financial performance and position of a business.

Double Entry System

An accounting method where every transaction affects at least two accounts, ensuring that the accounting equation remains balanced.

Liquidity

A measure of a company's ability to meet its short-term financial obligations.

Cost of Sales

The direct costs attributable to the production of goods sold by a company.

Expenses

Costs incurred in the process of earning revenue, which reduce overall net profit.

Assets and Liabilities

Assets are resources owned by a business, while liabilities are obligations owed to external parties.

Profit and Loss Ledger Account

An account that summarizes all income and expenses to determine net profit or loss.

Financial Statements

Formal records of the financial activities and position of a business, including the statement of profit or loss and statement of financial position.