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Chapter 17 Financial Management simplified (1)

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FINANCIAL
MANAGEMENT
Chapter 17
THE INCOME STATEMENT
The income statement is a summary of
financial information for a defined
accounting period.
THE INCOME STATEMENT
The income statement (also called a Profit and
Loss Statement [P & L] or a Statement of
Operations) shows whether the business made or
lost money during the period being reported.
 For this reason, it presents important
information to all stakeholders of the operation.


Owners; Investors; Creditors; Managers ….
THE INCOME STATEMENT
An important difference between the income
statement and the balance sheet is that the
income statement represents a period of time and
the balance sheet represents a given point in
time. An income statement is said to be dynamic,
whereas the balance sheet is static.
 The cost of food sold in a foodservice
establishment is calculated using the following
procedure:

THE INCOME STATEMENT
Gross profit or income is calculated by
subtracting cost of goods sold from sales or
revenue.
 The remaining expenses may be categorized as
controllable or noncontrollable or, as in the
example, labor costs and operating expenses.
 The net profit or loss is calculated by subtracting
labor and other operating expenses from gross
profit.

THE INCOME STATEMENT
The figures for preparing this statement are
taken from the cash ledger, income and
disbursements, and from the beginning and
ending physical inventory figures.
 A simple summary of the profit and loss
statement is shown here:

- The two main statement that we can use to know for doing well in terms of
Profit and loss are:
A- the first documents is the income statement
B- the second document is the balance sheet
- The income statement its also known as P and L; profits and losses and this
Is a statement that is usually issues over a specific period of time maybe
Monthly or weekly; and this tell us about how much we are losing or how
Much we are making money during a certain period of time.
- Maybe the stoke holder this those who have a share on the company, owners,
Investors …., looking at that document and tell if there doing well and compare
Over time if there improving or not.
Comparison between the income statement and the balance sheet.
- The income statement really tell us at the end how much we actually made
During a certain period of times, whereas the balance sheet just telling us how
Much we are worse at a certain points of time.
- The income statement is usually issues monthly, maybe weekly whereas
The balance sheet is often made out to see how much our net work as at a
certain point of time.
- The income statements is set to be dynamic, where is can be change it over
Time whereas the balance sheet is set to be static we cannot change it less
Chance to change.
- In terms of income statements [slide 5,6,7];
A- we determine actually how much we paid for a food product that we sold
B- we add how much inventory at the beginning of the period that we are
doing the income statement form for example for the month.
C- we determine how much purchases we maid
D- we determine how much we still have left = value of available food.
E- and then less inventory at end of the period and then equal costs of good
sold during this periods.
- This is mean for example
A- If we have an inventory, lets say we have 1000$ word of stoke on our stores
(at the beginning pf the period)
B- then we add how much we actually purchase during that period where we
are making the income statement form.
C- the total is equal too how much available food we have.
D- we subtract from that how much inventory we still have in our stores.
E- this is equal to the costs of good sold during that period, that are giving
actually that how much the food costs during a certain period of time.
- So in the end the income statement form tell us how much our net income is
(how much we made at the end or over a certain period of time).
- We must calculate all the costs that we include during this period and then
we subtract from how much we actually sold, and this is give us an idea
On how much we actually maid during that time (during a specific period
Of time).
- The income statement is usually used by the stokes holder, the manager in
order to see if we doing well over a certain period or not.
THE BALANCE SHEET
The balance sheet provides information
about the value of a business and how well its
assets have been used to meet the financial
goals of the operation.
THE BALANCE SHEET
The balance sheet (Figure 17.8) is a listing of
assets, liabilities, and capital of an operation as
of a specific date.
 The assets are categorized as current or fixed.

THE BALANCE SHEET
Current assets include cash and other assets
that will be converted to cash in a short period of
time, usually a year or less.
 Cash includes cash on hand, cash in savings and
checking accounts, electronic fund transfers from
credit card companies, and CDs (certificates of
deposit).
 Assets that will be converted to cash in a short
period of time include accounts receivable,
inventories, prepaid expenses, and marketable
securities.

THE BALANCE SHEET

Fixed assets are permanent, such as long-term
investments, buildings, furniture, fixtures, land,
large and small equipment, linen, china, and
glassware.
THE BALANCE SHEET
Liabilities are classified as current or long-term.
 Current liabilities are those that must be paid
within the period of a year, such as food and
supplies, taxes, salaries, wages, interest, and
part of the mortgage.
 Long-term liabilities are those that will not be
paid within the coming year. These include longterm debt, mortgages, lease obligations, and
deferred income taxes.
THE BALANCE SHEET
The Capital or Equity section of the balance
sheet includes the portion of the business that
represents the owners’ interest.
 The ownership in for-profit businesses may be




a proprietorship (owned by a single individual),
a partnership (owned by two or more people),
or a corporation (owned by stockholders).
THE BALANCE SHEET
Retained earnings is the final entry in the equity
section of the balance sheet.
 Retained earnings represents the profit that has
not been distributed as dividends.


If net losses have occurred, this number may be
negative.
As shown on the sample balance sheet, the
fundamental accounting formula
ASSETS = LIABILITIES + EQUITY
is always followed on the bottom line of the balance
sheet.

- The balance sheet is a different time of tool that tell us is how much our net
work us actually.
- The balance sheet is categories all our assets as current or fixed (categories
our assets in one side and what we have to paid for on the other side).
- The assets include how much cash we have, how much saving we have on
the bank accounts, how much we have deposits in to our bank account, credit
card, bills that are paid (that need paid to us), so all of this will be given as a
total number obviously of our assets ( what we have).
- Then we go across our liabilities, the liabilities are the things we actually
own (owed) such as expenses(spending/outlay), or loans from bank …
- Liabilities are classified as current or long-term.
Current liabilities are those that must be paid within the period of a year,
such as food and supplies, taxes, salaries, wages, interest, and part of the
mortgage.
Long-term liabilities are those that will not be paid within the coming
year(after one year). These include long-term debt (such as we paid for a loan
for 5 years), mortgages, lease obligations, and deferred income taxes, or we
bought things or could pay for them in a year (or after one year).
- The balance sheet have a section for the Capital or Equity and this is how
much we actually owned shares for example in the company (if the manager
has shares in the company), that would be part of the capital.
- The ownership in profitable business is the aim to make money could be
owned only by one individuals or it would be a partnership, or could be
owned by several people, or it’s a big corporations for example if we have a
stoke holders that are holding the shares of the company.
- Finally the balance sheet can include the Retained earnings is the final
entry in the equity section of the balance sheet.
- Retained earnings represents the profit that has not been distributed as
dividends (the profit divided between who is those will take the profit if we
have more than one person he will profit from the establishment ). For
example if we have 4 people they will profit from the establishment, so this
profit will be divided between these 4 peoples.
If net losses have occurred, this number may be negative.
As shown on the sample balance sheet, the fundamental accounting formula
(main formula)
ASSETS = LIABILITIES + EQUITY or shares
is always followed on the bottom line of the balance sheet.
https://www.investopedia.com/terms/l/lia
bility.asp
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