Cash flow statement: movement of money in and out of business

• Insolvency: when expenditure has exceeded income for an unacceptable length of time and the firm is unable to pay debts.
• Cash inflows: receipts of cash to a business can include:

• Payment for goods or services from customers
• Bank loan
• Interest on savings and investments
• Shareholder investments
• Tax returns

• Cash outflows: any cash outgoings and can include:

• Purchases of stock, raw materials or equipment
• Wages, rents, daily operating expenses
• Loan repayments
• Taxes
• Asset purchases

Income statement: A summary of the income earned and the expenses incurred over a period of trading.

• Profit: A financial gain or the difference between the amount earned and the amount spent in buying, operating, or producing.
• Revenue: income from sales
• COGS = opening stock + purchases – closing stock
• Gross profit = sales – COGS
• Net profit = gross profit – expenses

Balance sheet: financial position of a business at a particular point in time.

• Assets: items owned
• Liabilities: debts owed to others
• Owners’ equity: value attributed to the owners
• Capital: amount owner puts into the business
• Retained profits: profits the business makes that are remained in the business.
• A = L + OE