Page 142 - Book-keeping for Secondary Schools Student’s Book Form One

Book-Keeping for Secondary Schools

other (liabilities), and the residual interest These financial statements components are
of the owners (equity). critical for assessing an enterprise’s financial
performance, liquidity, solvency, and overall
The statement of financial position follows financial health. Together, they provide a
the accounting equation: comprehensive view of the enterprise’s
Assets = Liabilities + Equity financial position and serve as valuable tools
FOR ONLINE READING ONLY
Key elements of a statement of financial for decision-making and financial analysis.
position include: In this chapter, only income statement and
(i) Assets (current assets and non- statement of financial positions will be
current assets) discussed, while cashflow statements will
(ii) Liabilities (current liabilities and be discussed in higher forms.
non-current liabilities)
(iii) Capital or Equity (fund invested in a An income statement
business for example, initial capital An income statement is a statement
and retained earnings) prepared at the end of an accounting

period to calculate the profit or loss made.
Cash flow Statement
The cash flow statement provides an The statement calculates profit or loss for
overview of an enterprise's cash inflows the period by comparing revenue earned
and outflows over a specific period. It during the period and expenses incurred
shows how cash is generated and used during the same period. It is therefore in
by operating, investing, and financing the income statement where the matching
activities of the enterprise during the principle, as highlighted in chapter one is
period. The cash flow statement is divided applied.
into three sections:
(a) Operating activities: Cash flows Calculation of profit or loss
resulting from day-to-day business The purpose of preparing an income
operations, including cash received statement is to calculate the amount of
from customers and cash paid to profit or loss for a particular period. Profit
suppliers and employees. or loss for a merchandising business is
(b) Investing activities: Cash flows calculated in two stages. The first stage
resulting from buying or selling compares the amount of net sales and cost
long-term assets, such as property, of goods sold to obtain the gross profit or
equipment or investments. loss. The second stage compares the gross
(c) Financing activities: Cash flows profit (obtained from the first stage) and
resulting from transactions with the other incomes with different expenses
enterprise's owners and loan providers, incurred in operating the business during
including issuance or repurchase of the period. The result is the profit or loss
shares, acquisition or repayment of for the period.
loan as well as payment of dividends.

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Student’s Book Form One

Book Keeping Form 1 New 2024 FINAL.indd 134 18/10/2024 10:14