Finance Management
Finance Basics: The Basic Links (B)
What are the basic financial links? What does the profit & loss statement shows?
Posted: Apr 2009
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.
HE 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.
