Finance
Basics: The Basic Links
(B)
by
Laurus Nobilis
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What
are the basic financial links? What does the
profit & loss statement shows?
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Posted
Apr 2009 |
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<<<
Previously on Finance Basics: Starting
the Business
THE
BASIC LINKS
In
order to have the basic business links we need:
•
the basic financial statements to be computed
•
the profit & loss statement, cash flow
statement and balance sheet are linked.
THE
PROFIT & LOSS STATEMENT
Shows:
•
sales revenue or turnover made during the period
and
•
the costs associated with those sales.
THE
CASH FLOW STATEMENT
Cash
end of previous period = Cash beginning of the period
Cash
at the beginning of a period:
+
Cash in
(all cash received during the period)
-
Cash out
(all cash paid out during the period)
=
Cash at the end of the period
THE
BALANCE SHEET
It
is drawn up at the end of the period, after all
transactions have taken place;
Therefore,
profit & loss and cash flow statements must be
calculated before completion of the balance sheet.
Profit
is:
•
owed to the shareholders,
•
a source of company funds
DAY
ONE
JS
can buy a box of sandwiches from fast food chain for
$70. The box contains 20 ham and cheese sandwiches.
JS
borrowed the sales stand from his friend.
JS
buys one box of sandwiches and sells them for $5 per
sandwich. Within
an hour he has emptied the box.
KEY
TIPS
•
Sales
– Cost = Profit
•
Cash
beginning of the period = Cash end of previous period
•
Profit
is a source of funds
•
Total
Assets = Total Liabilities
>>>
Next on Finance Basics: Understanding
Cash and Profit
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