Headroom and Income statement: Difference between pages

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1.  
''Accounting - Financial reporting''.


<i>Borrowing facilities</i>
(IS).


The undrawn amount of a borrowing facility at any time is known as the headroom under that facility.
A statement that sets out how the net profit or loss for a period is arrived at.


Note that 'headroom' is a term that can have more than one meaning and - here as elsewhere - it is important to be clear about the definition in its particular context.  
Also known as the ''statement of profit or loss'' or ''profit and loss account''.


(i) Often when treasurers talk about headroom, they mean the total amount of undrawn committed facilities. <br>
(ii) Sometimes they include uncommitted facilities as well. <br>
(iii) They take different views on whether or not they add cash balances to their headroom figure.


Under the 'double entry' accounting convention, income items in the Income statement are Credits (CR) and expenses are Debits (DR).


Total sources of liquidity need to be sufficient to meet the cash needs of an organisation, taking into account any uncertainty over future cash requirements.  
A net profit for the period under review is a Credit in the Income statement.


For this reason a <i>headroom target</i> should be set to provide flexibility and to ensure the Directors are able to certify their company as being a Going Concern (under IFRS accounting guidelines) at the end of each financial reporting period.
A net loss for the period is a Debit in the Income statement.




2.
Net profits or losses <u>for the period</u> - in the Income statement - feed through in turn to the Shareholders' funds (<u>cumulative</u> retained profits or losses) in the 'bottom half' of the Balance sheet (as <u>at the end of the period</u>).
 
<i>Equity</i>
 
An amount of authorised but unissued equity shares.
 
 
3.
 
<i>Borrowings documentation</i>
 
The difference between the current level of a financial covenant measure and the level at which the covenant would be breached.
 
 
4.
 
<i>Trading limits</i>
 
The difference between the current level of a trading position and the trading limit.
 
 
5.
 
More generally, any measure of financial or operational flexibility, or safety margin.




== See also ==
== See also ==
* [[Financial covenant]]
* [[Accruals concept]]
* [[Going concern]]
* [[Accrued income]]
* [[Rights issue]]
* [[Balance sheet]]
* [[Cashflow statement]]
* [[Credit]]
* [[Debit]]
* [[Deferred income]]
* [[Expense]]
* [[Financial statements]]
* [[Income statement exposure]]
* [[Net profit]]
* [[Primary statements]]
* [[Profit and Loss account]]
* [[Statement of changes in equity]]
* [[Statement of profit or loss and other comprehensive income]]


[[Category:Corporate_financial_management]]
[[Category:Accounting,_tax_and_regulation]]

Revision as of 10:47, 16 September 2020

Accounting - Financial reporting.

(IS).

A statement that sets out how the net profit or loss for a period is arrived at.

Also known as the statement of profit or loss or profit and loss account.


Under the 'double entry' accounting convention, income items in the Income statement are Credits (CR) and expenses are Debits (DR).

A net profit for the period under review is a Credit in the Income statement.

A net loss for the period is a Debit in the Income statement.


Net profits or losses for the period - in the Income statement - feed through in turn to the Shareholders' funds (cumulative retained profits or losses) in the 'bottom half' of the Balance sheet (as at the end of the period).


See also

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