BSB107: Business Finances

Accounting Equations

Assets – Liabilities = Equity
Assets – Current Liabilities = Equity + Non-current Liabilities
Assets = Liabilities + Equity
Assets – Liabilities = Opening Equity + Net Income
Assets – Liabilities = Opening Equity + Revenue - Expenses

Amortisation

Depreciation on intangible assets.

Audit

An assessment of a business’ financial statements that results in an opinion on whether they are true and fair. An unqualified audit option is one where the financial statements are considered true and fair without any caveats or qualification. A qualified audit opinion is one in which the financial statement are not considered true and fair. External auditors are not employees of the company being audited.

Balance Sheet

A financial report that lists all Assets, Liabilities, and Equity at a specific point in time. Also known as a Statement of Financial Position.

Cash Flow Statement

A financial report listing cash payments and cash receipts, grouped into three categories: Cash from operations, Cash from investing activities, Cash from financing activities.

Note that due to timing differences, some revenue may not have been received some some expenses may not have been paid.

Company and Corporate governance.

A business structure in which the business is a separate legal entity.

The processes and procedures by which a company is directed and controlled.

Cost of sales

The cost price of something that is then sold at a higher price to make a profit.

Creditor vs Debtor

Someone to whom a business owes money, creditors are always Liabilities.

Someone who owes the business money. A Recievable.

Credit rating

A rating given to companies that indicates their creditworthiness (ability to pay back debts).

Current assets/ liabilities

Assets that will be used up within 12 months, liabilities due within 12 months.

Income Statement

A financial report that lists all Revenue and Expenses over a period of time, calculating Net Income or Net Loss. AKA a Statement of Financial Performance, or a Profit and Loss Statement.

How the business gets from balance sheet at the start, to the end of the year.

Depreciation

A periodic allocation of the cost of an asset as an expense over its useful life.

Director

Someone responsible for supervising and controlling a company. Executive directors are also part of the management team. Non-executive directors are not managerial, but provide advice.

Dividend

A payment made by a company to its shareholders. Unlike, interest the amount of a dividend is not determined by a rate, but depends on the profits made by the company and a range of other factors, also known as distribution.

These are not shown in the Income Statement but are shown in the Statement of Changes in Equity.

EBIT & EBITDA

Earnings before interest and tax.

Earnings before interest, tax, depreciation, and amorisation.

Equity

The difference between a business’ Assets and its Liabilities. It can include Retained Earnings, Share Capital and any Reserves

Gross profit

Sales revenue less cost of sales. Before tax.

Income from operations

Income from the main revenue generating aspects of the business ( usually excludes investment income).

Intangible assets

Assets that do not have any physical existence.

Internal controls

Processes and procedures that control how assets are used and how financial transactions are recorded and reported

Liability

An obligation or debt, something that a business owes ( may include the term payable).

Listed company and Public company

A business whose shares are traded on a stock exchange.

Company whose shares can be bought by the public.

Net assets

Total assets - total liabilities. Net assets always equals equity.

Net Income

Revenue - expenses. Also called net profit.

Provisions

Estimates of amount that a company will have to pay in the future, not part of formal loan. reduction of assets.

Property, plant and equipment

Non-current tangible assets.

Receivable

Amount that someone owes the business - asset.

Reserves

Increases in equity other than from net income.

Retained earnings

Net income after tax that is not paid out as dividends

Right-of-use asset

Leased asset that the business has the right to use for the duration of the lease, even though the business may not legally own it.

Share Capital

The value of shares issued

Short selling

Selling a share in a company that one does not own, in the hopes the price will go down, it can then be repurchased at a lower price, making profit.

Statement of Changes in Equity

A financial report showing equity from one period to the next, includes dividends.

Working Capital

Current Assets less Current Liabilities. Sometimes referred to as Net Working Capital