Finance for Non Finance Managers: The P&L, Balance Sheet & Cash Flow

Finance for Non Finance Managers. An introduction to the Profit & Loss Account,Income Statement, Balance Sheet, Statement of Financial Position & Cash Flow Statements.

Hello my name is steve karl from 20 training and you’re watching the first in our finance for lawn finance managers video series so this is this is a series of videos for managers you might be a manager you might be a director you might just be an employee but you or you might you might be running your own company ya might be doing that and you just want to know

More about finance you want to know more about the world of finance lore about how things fit together and what the terminology means so this is this is our first video and today i’m going to be talking about why we have financial statements and what the financial statements are oh by the way i’m assisted here standing behind the camera you can’t see is charlie

And charlie’s gonna put up some little reminders for you of the things that i say to help you follow the video so first thing i’m gonna talk about what the financial statements tell us or financial statements or accounts those two phrases mean the same thing and actually there’s a lot of phrases in finance and the world of finance that actually mean exactly

The same thing and when we come across some of those i’m going to tell you what they are so the first one is accounts financial statements basically mean the same thing financial statements is just a fancier term to mean exactly the same thing so what do we get in a set of financial statements and what the financial statements tell us well the first thing is

And charlie’s probably gonna pop this up right there i would guess just about there charlie yeah the first thing is financial stems tell us about performance and that’s the first thing it’s the most important thing so performance means how have we performed over a period of time so that might be a month so how we perform from the beginning of the month to the

End of the month or might be a quarter from the beginning of the quarter to the end of the quarter or it might be six months or it might be a whole year we want to know how we’ve performed the performance means what have we earned what is our income in that period and what have we incurred and of course what we’ve earned that’s what we’ve incurred in in costs

Gives us our profit or loss if you’ve earned more than we’ve incurred we’ve got a profit and if we’ve incurred more costs than we’ve earned never got a loss never mind yeah so that’s the first thing the most important thing that financial statement shows and the second thing that they can show us is our position our position where were we and a particular point

In time so position is a destination where we arrived yeah so financial stems tell us where we are right now in terms of what in terms of our assets and our liabilities assets are things you own and liabilities are things you will so second thing we need to know about an organization is what is its position what is its financial position in terms of its assets

And liabilities and the third thing those financial statements tell us is they tell us about the liquidity and there’s a funny phrase liquidity suppose it’s the first technical phrase so liquidity is all about the amount of cash you’ve got how much cash do we have and how much cash do we have to pay out in the short term and how much access to future cash do we

Have that’s the third thing that we’d like to know about a business because businesses need cash to survive in the short term we need to be able to pay our bills and our wages yeah we need to be able to pay ourselves to here on the business okay so let’s let’s move on now and look at actually what we call us those three three different views of the business okay

Let’s so let’s have a look now at the names that we give to these three statements so first of all we’ve got this statement of performance that’s actually got a number of different names depending on where you are depending on whether you’re in the private sector or whether you’re in the public sector whether you’re in the uk or whether you’re in the us or china

Wherever you are has different names so the most common name colloquial name i suppose is the profit and loss account sometimes abbreviated to the p&l secondly the stem that is also known as the income statement and it’s the same thing it doesn’t just show your income by the way it shows your income and expenditure but it’s often referred to as the income

Statement certainly if you’re a large business a business quoted on a stock exchange anywhere in the world then you will call it an income statement and the third name usually used by the public sector is the income and expenditure statement sometimes if you produce a profit lost account or income statement internally and you’re short to your managers and you

Show your managers just so that they can track their performance you show them their own version of the profit loss account it’s known as the management accounts okay and the profit loss account or income statement is a little bit like a video so it shows what’s happen in the beginning to the end of a period yeah it shows what income and expenditure you’ve had

During that period the statement of position is called the balance sheet and that shows your assets and liabilities at a particular point in time so it might show what your assets and liabilities were on the 31st of december if that’s the date that your financial year ends or what your assets and liabilities were on the 31st of march if that’s the date your

Financial year ends you can produce a balance sheet at any point in time and what it shows you hey this is interesting it’s a little bit like a photograph and it’s sometimes not on the balance sheet is a snapshot in times like a photograph it’s like a financial photo of your business and it shows you the assets and liabilities you had at that one particular point

In time and just like a photo is always out of date as soon as it’s taken it’s out of date you might look back at photographs of yourself from ten years ago and you look completely different now same with the balance sheets you if you prepare a balance sheet on the 31st of december by the 2nd of january the assets and liabilities you have will have changed so we

Often refer to it as a snapshot in turn in the balance sheet one other thing about the balance sheet it also has another name so the name is the statement of financial position and certainly if you are looking at the financial statements of a quoted company a company that’s has its share squatted on a stock exchange it will call its balance sheet and statement

Of financial position just a different name for the same thing the third statement and probably the least important from our point of view as accountants is the cash flow statement the cash flow statement is very simple it just shows the cash coming in and the cash going out it’s like a video as well it shows what’s happen from the beginning of the period to

The end of the period but it shows what’s happened in terms of the cash receipts and payments so let me just have a look at those three things just to recap a profit and loss account first of all profit and loss account shows income and expenditure charlie it shows the difference between the income and expenditure if you’ve got more income than expenditure you

Got a profit if you’ve got moral expenditure than income you’ve got a loss really important thing about the income and expenditure statement 8 and i’m going to talk about this in the next presentation in the next video the income and expenditure statement is prepared using the accruals principle funny word the accruals principle i’m going to tell you all about

That in the next one have a look at that one really really important fundamental for understanding what makes a set of accounts as i say the profit loss account has many names it’s also known as the income statement the income and expenditure statement and when organizations produced them internally it’s known as the management accounts it’s a quick recap on

The balance sheet the balance sheet shows assets and liabilities things you are on which are assets and things you oh which are liabilities just change one letter things you own i think you go and it’s just the difference between the things that you earn and the things that you will it also shows your funding what i mean by that the fully where does your money

Come from so usually the money might come from the shareholders i’m going to talk more about that in one of the later videos have a look at balance sheet one video if you’re interested in that so it shows the funding where you’ve got the money from it also shows the reserves that you’ve accrued that you’ve accumulated over time since you started business have you

Accumulated any reserves and i’ll talk about how you accumulate reserves again when you have a look at that balance sheet video finally the balance sheet has also got another name it’s called the statement of financial position that’s a more modern name and certainly all the large businesses in the world use that that name okay lastly we’ll have a look at that

Cash flow stem it’s a very simple statement it shows your receipts and payments what you’ve received and what you’ve paid i’m listening to that you might think hey that’s like my bank statement look david shows that and yeah it does yeah because the cash flow statement is basically a bank statement for the business it shows the cash coming in and the cash going

Out it also shows what you had at the beginning and the end of the period just like your bank statement shows it is a very simple step it’s essential to a business that they’ve got enough cash as we’ll talk about later on when we look at cash flow and liquidity and working capital there’s another video on that hey there’s lots to watch and basically that’s all

I want to say for this video so have a look at the others have a look at the other ones have a look at the accruals one and the profit and loss one are the balance sheet one have a look at the liquid have a look at all of them they’re fantastic alright i’ll leave you there my name is dick carlyle from clearly train thank you you

Transcribed from video
Finance for Non Finance Managers: The P&L, Balance Sheet & Cash Flow By scarlyle100