3.4 Flashcards
what is a final account?
Final accounts are a legal requirement of financial statements that businesses have to fulfil at the end of a particular accounting period (normally a year).
what do final account generally help with?
Final accounts help with the organization of the business since they include transactions, revenues and expenses
but also
help to inform internal and external stakeholders of the business situation.
can you give examples of external and internal stakeholders?
Some examples of internal stakeholders are: shareholders, managers and employees. And external stakeholders: the Government, costumers, suppliers, the local community, etc.
what is the purpose of a final account for a shareholder?
The owners of the company are interested to see where their money was spent and the return they will get from the business.
Shareholders use the financial performance to decide on whether to keep their shares, sell them or maybe buy more.
They are also interested in the performance of the company’s Directors to decide ways of motivation or maybe replace them.
what is the purpose of a final account for a manager?
Mangers are interested in the performance of the business for target setting and strategic planning.
They are also interested in the firm’s efficiency.
what is the purpose of a final account for an employee?
Employees are interested in the performance of the business for “job security” and possible increases in salaries.
It could also lead to disputes and creation of unions, if the company is profitable and does not increase the employees’ salaries.
what is the purpose of final accounts for the government?
The Government is interested in a business’s profitability for tax purposes.
Also, to verify in the company is following the law.
In cases of big multinational companies, the Government expects an increase in employment.
what is the purpose of final accounts for suppliers?
The suppliers are interested in the firm’s final accounts to ensure they will get paid on time or to grant more credit if needed.
Also, if the firm has a debt with the suppliers, with the final account they can see if it will be possible to get paid or not.
what is the purpose of the final accounts for costumers?
Customers are interested to see if the firm will keep supplying the product.
Final accounts give them an idea to continue being customers of the firms or look for alternatives.
what is the purpose of the final accounts for competitors?
Competitors use final accounts to compare their performances.
They compare sales revenues and levels of profitability.
what is the purpose of final accounts for financers? (banks and othernloan providers)
Financers, such as banks, look at the final accounts before approving loans. Basically, to verify if the business can pay back the loan.
what is the purpose of the final accounts for the local community?
If the business is profitably it might create jobs and improve the living conditions of the local community.
Conversely, if the business creates environmental issues it will have a negative effect in the local community.
what must all organisation do with their final accounts?
When an organization prepares their final accounts they MUST comply with the ‘principles and ethics of accounting practice’ stablished by a regulatory body.
Professional accountants have the responsibility to act in the public interest and follow the ethic code.
what is the name of the organization that regulates accountants?
The Association of Chartered Certified Accountants (ACCA) is a global regulatory body for professional accountants that assures its member are properly regulated.
what is The Association of Chartered Certified Accountants (ACCA) ethics and conduct codes five principles?
integrity
objectivity
professional competence and due care
confidentiality
professional behaviour
what are 2 main final account that are key for every business?
The profit and loss account and the balance sheet
what is the profit and loss account?
it shows the records of income and expenditure flows of a business over a given period of time. Also know as ‘income statement’. It establishes if the business is making a profit or a loss and it’s divided.
what is the balance sheet?
also known as “Statement of financial position” it is a financial statement that outlines the assets, liabilities and equity of a business at a specific point of time.
what is the trading account?
it’s the first part of the profit and loss account and shows the difference for the business’s sales revenue and the cost of those sales for the business.
what is the formula for gross profit?
gross profit= sales revenue- cost of sales
what is the formula for cost of sales (COGS)?
COGS=opening stock +purchases- closing stock
what is the definition of costs of goods sold? (COGS)?
the direct cost of producing or purchasing the goods that were sold during the period.
what is the definition for gross profit?
the difference between the costs of good sold and the sales revenues.
what does the second part of the profit and loss account show?
it shows the net profit before intrest and tax and the net profit after and intrest and tax.
what do you need to do first when calculating the net profit before intrest and tax?
First, to calculate net profit before interest and tax,
expenses need to be subtracted from the gross profit
Second, subtracting interest payable on loans we get the net profit before tax.
Finally, deducting the corporation tax we get the net profit after interest and tax.
what is the formula for net profit before it rest and tax?
net profit before intrest and tax= gross profit - expense
what is the formula for net profit before tax?
net profit before tax= net profit before intrest and tax- interest.
what is the formula for net profit after interest and tax?
net profit before tax- corporation tax
what is the appropriation account?
its the final part of the income statement showing how the company net profit after intrest and tax is distributed. This distrobution can either be in the form of dividends for retained profit.
