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Business resources P5

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Introduction

Financial Statements Financial statement is a tool which allows the business to measure their finances. There are types of financial statements. These are profit and loss account, balance sheet and cash flow forecast. However in this question I will only be looking at two of the financial statements instead of the three and these are profit and loss account and balance sheet. Profit and loss account The profit and loss account is a valuable technique which shows the business how much it has made at the end of its financial year. For that reason this will help a future investor or financial institute to make a decision if it is worth taking the risk to invest in this business. In addition to that if it is a small business it will see how much profit has been made at the end of its financial year. This is a useful technique as it will help a business plan their finances and this can help them set a budget. The structure of the profit and loss account is divided into two sectors. The top half of the profit and loss account starting from the sales to the gross profit is known as the trading account. ...read more.

Middle

Balance sheet A balance sheet is a statement of the business assets, liabilities and equity. A balance sheet is important because it gives you a snapshot of the business financial strength at a specific period of time. The structure of the balance sheet is split into five sections. At the top you have the fixed assets, and just below that you have the current assets, and below that you would have the current liabilities, then just below that you have the net assets and then you would have the financed by. Terms Definition Fixed assets Fixed assets are the assets which are owned by the business and retained by the business for a year or more. For example building, vehicles, Fixture and fittings and equipment Depreciation Depreciation is an expense that reduces the value of an asset. An asset loses its value over a period of time. For example the fixture and fittings cost �50,000 but it depreciated in value by �20,000 so the net book value would be �30,000. Current asset The current asset is the assets which are owned by the business and can be converted into the cash. ...read more.

Conclusion

Then you add the current assets together and then you deduct he current liabilities from the current assets and that will give you a working capital. In addition to that you add the working capital to the total fixed assets and that will give you a net asset. Then you have the capital and this is made up of the opening capital, drawings and profit and that will give you the closing capital. In order to work out the closing capital you need to add the opening capital to the profit and deduct the drawings and that will give you the closing capital. For the balance sheet to be correct the closing capital figure needs to be the same as the net asset figure. The items which make up a balance sheet is the fixed assets, current assets, current liabilities, net asset, financed by and the closing capital. A balance sheet is important to a business as it shows the assets of the business and the amount the business is worth. It will allow a future investor to see how much the business is worth and decide whether it is worth taking a risk in investing in this business. ?? ?? ?? ?? Abdulaziz Omar P5 - Investigating Business Resources ...read more.

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