3.4 Final Accounts

Question 1

What is Profit & Loss Account

Answer 1

A summary of the business’s financial performance over a given time period
Showing the revenue, cost, and profit over a period of time

Question 2

Profit

Answer 2

= Revenue - Total Costs

Question 3

Revenue

Answer 3

= Price x quantity sold

Question 4

Costs

Answer 4

• Cost of Goods Sold
  Costs of inputs needed to produce the product
• Expenses
  Costs of running the business not directly related to production

Question 5

P & L order

Answer 5

R.C G.E.N I.N T.N

Revenue

COGS

Gross profit

Expenses

Net Profit before Interest and Tax

Interest

Net profit before tax

Tax

Net Profit after interest and tax

Dividends

Retained Profit

Question 6

Balance Sheet

Answer 6

‘in the year ending’
FA CA CL, Nca Ta-cl Ltl Na FB

Fixed Assets

• Accumulated Dep.
• Net FA

Current Assets

• Stock
• Cash
• Debtors
• Total CA

Current Liabilities

• short term bank loans
• Creditors
• Overdraft
• Total CL

Net Current Assets
Total assets - current liabilities
Long term liabilities
Net Assets

Financed by:
- share capital
- Accumulated retained profit
Equity

Net Assets = Shareholder Equity

Question 7

Intangible Assets

Answer 7

no physical substance and are not financial instruments (e.g. bank accounts)

• Trademarks
• licensing agreements
• Patents, innovation
• Goodwill

-

Question 8

Retained Profit

Answer 8

Put back into the business

Question 9

The principles and ethics of accounting practice

Answer 9

Integrity

Honestly and with morals

Objectivity

No bias, conflict of interest

Due Care

Competent

Confidentiality

Do not disclose information to external parties

Professional Behaviour

Comply with the law

Question 10

The purpose of accounts to different stakeholders AO3

Answer 10

Investors

Assess the value of the business compared to the share price?

Is the business becoming more or less profitable?

Business Managers

Measure performance against targets

Compare to the past

Banks

Should we lend to the business?

How much of an overdraft should we give?

Creditors

Is the business financially secure?

Does it have liquidity (i.e. cash) to pay its debts

Government and tax authorities

Calculate corporation tax

Is the business following tax and accounting rules?

Also

Employees, , Customers, IB Students etc