1.

Terminology

asset

Any item of economic value owned by an individual or corporation, especially

that which could be converted to cash. Examples are cash, securities, accounts
receivable, inventory, office equipment, real estate, a car, and other property.
On a balance sheet, assets are equal to the sum of liabilities, common stock,
preferred stock, and retained earnings.

From an accounting perspective, assets are divided into the following

categories: current assets (cash and other liquid items), long-term assets (real
estate, plant, equipment), prepaid and deferred assets (expenditures for future
costs such as insurance, rent, interest), and intangible assets (trademarks,
patents, copyrights, goodwill).

fixed asset

A long-term, tangible asset held for business use and not expected to be
converted to cash in the current or upcoming fiscal year, such as
manufacturing equipment, real estate, and furniture. also called plant.

tangible asset

Assets having a physical existence, such as cash, equipment, and real estate;
accounts receivable are also usually considered tangible assets for accounting
purposes. opposite of intangible asset.

intangible asset

Something of value that cannot be physically touched, such as a brand,

franchise, trademark, or patent. opposite of tangible asset.

liabilities

Plural of liability. A liability is a financial obligation, debt, claim, or potential

loss.

current liabilities

A balance sheet item which equals the sum of all money owed by a company
and due within one year. also called payables or current debt.

Share capital
The proportion of a company's capital which derives from the issue of ordinary
shares and preference shares.

Retained profit

profit not distributed to stockholders: the part of the after-tax profits of a

business that is not distributed to stockholders

EQUITY

Equity is a term whose meaning depends very much on the context. In general,
you can think of equity as ownership in any asset after all debts associated
with that asset are paid off. For example, a car or house with no outstanding
debt is considered the owner's equity since he or she can readily sell the items
for cash. Stocks are equity because they represent ownership of a company,
whereas bonds are classified as debt because they represent an obligation to
pay and not ownership of assets

reserve

The funds that are earmarked by a firm from its retained earnings for future
use, such as for the payment of likely-to-be-incurred bad debts. The existence
of such a reserve informs readers of the firm's financial statements that at
least a part of the retained earnings will not be available to the stockholders.

revenue
The inflow of assets that results from sales of goods and services and earnings
from dividends, interest, and rent. Revenue is often received in the form of
cash but also may be in the form of receivables to be turned into cash at a
later date.

cost of sales

On an income statement, the cost of purchasing raw materials and

manufacturing finished products. Equal to the beginning inventory plus the cost
of goods purchased during some period minus the ending inventory. also
called Cost Of Goods Sold (COGS).

gross profit

Calculated as sales minus all costs directly related to those sales. These costs
can include manufacturing expenses, raw materials, labor, selling, marketing
and other expenses.

expense

Any cost of doing business resulting from revenue-generating

activities.
depreciation

A noncash expense that reduces the value of an asset as a result of wear and
tear, age, or obsolescence. Most assets lose their value over time (in other
words, they depreciate), and must be replaced once the end of their useful life
is reached.

profit

The positive gain from an investment or business operation after subtracting

for all expenses

dividend

A taxable payment declared by a company's board of directors and given to its

shareholders out of the company's current or retained earnings, usually
quarterly

2. Accounting concepts

Going concern: Holds that the financial statement should be prepared on the
assumption that the business will continue operations for the forseeable future,
unless this is no not to be true.

A going concern is a business that functions without the intention or threat of

liquidation for the foreseeable future, usually regarded as at least within 12
months.

In accounting, "going concern" refers to a company's ability to continue

functioning as a business entity. It is the responsibility of the directors to
assess whether the going concern assumption is appropriate when preparing
the financial statements. A company is required to disclose in the notes to the
financial statements whether there are any factors that may put the company's
status as a going concern in doubt.

• the company will continue to trade for the foreseeable future and that
the fixed assets and stock will be used in the normal course of trade

accruals

Accruals
Accruals are amounts that are owed to third parties for which a business has
not yet been invoiced. The total of accruals is shown in the balance sheet as
part of creditors due less than one year. For example, where a business has not
been invoiced by an advertising agency for its costs for the last three months
of the year, it will show in its accounts an accrual for the estimated amount of
the invoice.
Accruals concept
One of the fundamental accounting concepts, the accruals concept is also
known as the “matching concept”. Under the accruals concept, revenue and
costs are credited or charged to the profit and loss account for the year in
which they are earned or incurred, not when any cash is received or paid. For
example, if a sale is made on credit this year, but the cash is only received
next year, the sale is treated as income in this year. Similarly, if a business
incurs a cost during the year (e.g. electricity) but is not invoiced until early in
the next year, the accounts will show an estimated liability for the expected
amount of the invoice.

• costs are matched with associated revenues, when incurred or earned, in

the period to which they relate, insofar as a relationship can be
established between costs and revenues, irrespective of when the cash
flows

consistency

• similar transactions are treated similarly, both year on year, and within
each accounting period, ie. similar accounting policies are adopted

Once a business has adopted on one accounting method, it should use the
same method for all subsequent events of the same character unless it has
sound reason to change

Prudence

• never recognize a profit until it’s realized, but

• account for losses as soon as they can be anticipated with reasonable
probability
• prudence concept
• Definition
• Accounting concept that requires recording (recognizing) the expenses
and liabilities as soon as possible, but the revenues only when they are
realized or assured. It implies that only that method of determining asset
value or net income which yields the lesser amount should be used.

Materiality

An item is material if its inclusion in, or exclusion from, a financial statement

would cause a user of that statement to make a different decision from that
which might otherwise be made – a subjective issue

Information is material if its omission or misstatement could influence the

economic decision of users taken on the basis of the financial statements.
Materiality depends on the size of the item or error judged in the particular
circumstances of its omission or misstatement. Thus, materiality provides a
threshold or cut-off point rather than being a primary qualitative characteristic
which information must have if it is to be useful."

Business entity convention

For accounting purpose the business and its owner are treated as being quite
seperate and distinct. This is why the owners are treated as being claimants
against their own businessin respect of their investments in the business.

Historic cost convention

This convention holds that the value of the assets shown on the balance sheet
should be based on the historic cost

3. Business ownerships

Sole proprietorship

Individual is the sole owner of the business. Business is often small interms of
size. Owner must produce the financial information for taxation autorities, but
no financial reports are necessery for the other users. Sole proprietorship has
unlimited liabilities, no distinction will be made between owners personal
wealth and that of the business.

Partnership

Partnerships exists where at least 2 individuals carry on the business together.

Much in comon with sole P. Partnerships are easy to set up as no formal
procedures are required. Partners of the business usually have unlimited
liabilities.

Advantages of partnership

Sharing the burden of ownership

The ability to raise capital where there is beyond the capacity of a single
individual.

Disadvantages

Risk of sharing ownership with unsuitable individuals

Limited companies.

Range in size.the liability of owners is limited, hense limited company, which

provide an opportunity to create a very large business. The benefit of limited
liability imposes such obligations on the cpmpany . framework of regulations
should exists which place obligations on the way which company conducts its
affairs. Part of regulatory framework requires annual financial statements. The
annual report must be lodged with the registar of the companies for public
inspection.

Advantages of partership over limited company:

- Easy setting up a business

- Freedom pf administrative burdens imposed by law

4. Users and user needs

5. Auditors report

To show a true and fair view of the financial performance, position and cash
flow of the company. Shows the shareholders a position of the business and
attract new investors.

Directors report

The law requires that Uk companies prepare a directors remuneration report

on an annual basis. The report must be submitted to shareholders for approval.
Tehe report should include details of remuneration of each director and should
setout details of salaries, fees , expense allowances etc.

Segment Report

Shows segment information according to each business segment and each

each geographical region. Break down information according to business
activities. Trend the performance of each segment over time and determine
more accurately grow prospect.

Group accounts

Cash Flow

How the business generated cash during period. Tryes to help users to
understand the financial statement.

Income statement

Is concerned with the flow of wealth over a period of time also links the balance
sheet at the beginning and the end of an accounting period.

Balance Sheet

Is a statement of the financial position of the business at the single moment in

time.
6. Relationship between balance and income

After apropriated period an income statement is prepared to show the wealth

generated over that period and the balance sheet reveal the new financial
position at the end of this period.

7.

8 . Factors affecting shareprice

News and iformation of new data of employment, Manufactoring, directors

dealings, political events and weather.

9.Indices

10. Source of finance

11. SCRIP ISSUE

A scrip issue (also called a capitalisation issue or a bonus issue) is the issue of
new shares to existing shareholders at no charge, pro rata to their existing
shareholdings.

Rights issue

A rights issue is a way in which a company can sell new shares in order to raise
capital. Shares are offered to existing shareholders in proportion to their
current shareholding. The price at which the shares are offered is usually at a
discount to the current share price, which gives investors an incentive to buy
the new shares.

12. FT

Price – previous days closing market pricein pence

Change – price change from the day before

High and Low – share price high and low in the past 52 weeks

Yeild – divident yeild. divedent per share divided by current share price

P/E – Price to earnings ratio. Price of the share divided by the companies
earnings per share in the last 12 months traiding period

Volume – number of shares traded on the previous day.

Dividend – the dividends paid in the comapnies last full financial year.
Dividend cover – The ratio of profits to dividends, calculated by dividing the
earnings per share by the dividend per share.

Mcap – Market Capitlisation: an indication of the stock market valuation of the

comapny in millions of pounds. It‘s calculated bymultiplying the number of
shares by their market price.

Ex-Dividend – The last date on which the share went ex-dividend, expressed
as a day an month unless the dividend has not been paidfor some time, in
which case the date might be the month and the year. Cityline – The FT
cityline code by which a real time shares are available over the telephone.

13. Dividend policy

Once a company makes a profit, they must decide on what to do with those
profits. They could continue to retain the profits within the company, or they
could pay out the profits to the owners of the firm in the form of dividends.
Once the company decides on whether to pay dividends, they may establish a
somewhat permanent dividend policy, which may in turn impact on investors
and perceptions of the company in the financial markets. What they decide
depends on the situation of the company now and in the future. It also depends
on the preferences of investors and potential investors.

14. Ways to improve cash flow

Truck your spending, use borrowing power, maximise your credit and charge
limits, control your spending, pay bills ontime.

ACCOUNTING

The process of identifying , measuring and communicating information to

permit informed judgements and decisions by users of the information.
Accounting provides financial information for a range of users to help them
make better judgements and decisions conserning business. Accouting
information must have an ability to influence the dicisions. The information
may be relevent to the prediction of future events .

Financial accounting and managment accounting. MA is done for the

managers. Ma is done to analyse the future possibilities. MA could be done as
often as required.

Financial accounting is done for all other users of accounting information.

Usually produced annually. FA looks at the past.