3.4 Final accounts Flashcards
Depreciation
Depreciation is the fall in the value of fixed assets over time, from wear and tear (due to the assetbeing used) or obsolescence (outdated or out offashion).
Final accounts
Final accounts are the published annual financial statements that all limited liabilitycompanies are legallyobliged to report, i.e. the balance sheet and the P&L accounts.
Fixed assets
Fixed assets are items owned by a business, not intended for sale within the next twelve months, but used repeatedly to generate revenue for the organization, e.g. land, premises and machinery.
Goodwill
Goodwill is an intangibleasset whichexistswhen the valueof a firm exceeds its bookvalue (the value of the firms net assets).
Gross profit
Gross profit is the difference between the sales revenue of a business and its direct costs incurred in making or purchasing the products that havebeen sold to its customers.
Historic cost
the purhcase cost of a particular fixed asset
Intagible assets
Intangible assets are fixed assetsthat do not existin a physical form, e.g. goodwill, copyrights, brand names and registered trademarks.
Net assets
Net assets show the value of a business by calculating the value of all its assets minus its liabilities. This figure must match the equity of the business in its balance sheet.
Net profit
Net profit is the surplus (if any) that a business makesafter all expenses havebeen paid for out ofgrossprofit.
The profit and loss account / income statement
The profit and loss account (or income statement) is a financial record of a firm’s trading activity over the past 12 months, consistingof three parts: the trading account,the P&L account and the appropriation account.
Reducing balance method
Reducing balance method is a method of depreciation that reduces the value of a fixed asset by the same percentageeach yearthroughout its usefullife. Thisisthe more realistic method to use.
Residual value
The residual value of an asset is an estimate of the scrap or disposalvalue of the assetat the end of its usefullife.
Retained profit
Retained profit is the amount of net profit after interest, tax and dividends have been paid. It is then reinvested in the business for its own use.
Share capital
Share capital refers to the amount of money raised through the sale of shares. It shows the value raised when the shares were first sold, rather than their current market value.
Shareholder’s funds
Shareholders’ funds show the equity of the owners, i.e. the share capital invested by the owners and the retained profit and reserves that have been accumulated.
