Financial Training Associates makes a small sample of its modelling course material available online free of charge. This free course module was created for a London law firm and is designed to improve and check your understanding of businesses’ accounts. It starts by considering the role of the balance sheet.
The module concludes with an 8 question multi-choice quiz. If you have a little familiarity with company accounts, then working through the quiz (perhaps with a friend who knows a little more than you) will help improve or check your understanding. If you have no previous experience with company accounts, without the guidance of a tutor the quiz is going to be difficult. Persisting and working through it though should help improve your knowledge of key movements within company accounts. The course module examines:
- The profit & loss vs. the cash flow statement
- Financial statements: profit and loss vs. cash flow vs. balance sheet
- Financial statement linkages
- Profit and loss line items
- Depreciation and amortisation
- Key items in financial accounts: the balance sheet
- Cash flow statement items
- Case study/ course quiz: linkages in accounts.
The course module starts by providing an overview of the role of the balance sheet…
The balance sheet shows the difference between what the business owns (its “assets”) and what it owes (its “liabilities”). At the bottom of the balance sheet you will see the excess of assets over liabilities, recorded as “net assets” (= shareholders’ funds = shareholders’ equity = owners’ equity – they’re all just different terms for the same thing).
The balance sheet as a snap shot
The balance sheet is a snap shot. The balance sheet records the accountants’ value of the business at the end of the financial year. If we imagine the balance sheet as as a big tank of water, it’s our store of value/ the amount of water we have at the end of the year.
The balance sheet vs. other financial statements
If the balance sheet is our store of value, the profit and loss and cash flow statements tell us how much value we have created during the year. If we imagine the balance sheet as a tank of water, the profit and loss and cash flow statements tell us how much water has flowed into the tank during the year.
Profit and loss vs. cash flow statements
If the balance sheet tells us what the businesses’ value is at the end of the year, and the other two financial statements tell us how much value has changed during the year, what’s the difference between those other two statements? What’s the difference between the profit and loss and cash flow statements?
Proceed with the finance for non-financial managers training course