Monitoring and Controlling

Monitoring and Controlling – cash flow statement, income statement, balance sheet

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 inflowsreceipts 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


Extract from Business Studies Stage 6 Syllabus. © 2010 Board of Studies NSW.