AFS Notes The 4 Ps relate to financial performance: Profit and Loss (return), balance sheet (risk), cash flow statement (liquidity). Financial Information for Business Decisions 1. What price do you charge for a product or service? 2. How do you value the contribution of marketing? 3. What is brand value? 4. What are the costs associated with a promotion? 5. When do you stop selling a product? 6. When do you stop trading with a customer? 7. How does marketing impact on cash flow? 8. How do you measure market share? 9. How much profit is this outlet making? 10. How does marketing impact on shareholder value? Terms and Examples Asset – Any possession of value e.g. distribution centre, inventory or cash Debit Balance Revenue – Income earned by the organisation e.g. sales revenue or interest Credit Balance Liability – A financial obligation e.g. loan or accounts payable Credit balance Capital – Owner’s investment in the organisation e.g. shares or profit Credit balance Expenditure – Any cost incurred by the organisation e.g. electricity bill, 3PL fee or wages Debit balance Capital Expenditure -Expenditure on fixed (non-current) assets or additions thereto intended to benefit future accounting periods. Revenue Expenditure- Expenditure on the supply and manufacture of goods and provision of services charged in the accounting period in which they are consumed. Non-current Assets Intangible – Goodwill, Trademarks and licences, Computer software development costs Tangible Land & Buildings, Fixture & Fittings, Plant & Vehicles, Computers, Investments Depreciation Depreciation - The measure of the wearing out, consumption or other loss of value of a fixed asset whether arising from use, effluxion of time or obsolescence through technology and market changes. OR A measure of that portion of the cost (or fair value) of a non-current asset that has been consumed during an accounting period. Matching Concept - Revenues and costs are matched one with the other and dealt with in the profit and loss account of the period to which they relate irrespective of the period of receipt or payment. Straight Line Method - An equal amount is charged to the P&L Account per annum Reducing Balance - A fixed percentage is charged to the P&L Account per annum Sum of Digits - A large proportion is charged in the first year, then reduced on a sliding scale based on remaining useful life of the asset Profit & Loss Account - A proportion of the asset value is charged to the P&L account as an expense. Balance Sheet - The original cost is recorded in the Balance Sheet and each year the asset is written down by the cumulative depreciation charge.
