3.4 Final Accounts Flashcards
stakeholders
any individual or group that affects, or is affected by, an organisation
internal stakeholders list
management, owners and shareholders, and employees
internal stakeholders
groups within the business that are interested in the final accounts
management
people in the organisation that plan, organise, coordinate, and control the activities in the business
how does management use final accounts
- see how easily a business can cover its immediate, short-term and medium-term debts to ensure that the company does not become insolvent
- see profit earned during the year
- see value of assets owned by the company
- see amount of money invested by shareholders
owners and shareholders
individuals and organisations that own shares in the company
how owners and shareholders use final accounts
- see how effectively their money has been effected
- see how much they will receive in dividends
employees
people who work in the business
how employees use final accounts
- see overall financial stability of the business and how secure their jobs are
- be able to negotiate for better wages based on the profits of the business
external stakeholders
groups outside the business that are interested in the final accounts of that business
external stakeholders list
government, competitors, banks, the business’s suppliers and the local community
government
government authorities of the country, region, or city where the business is located
why governments are interested in final accounts
- assess taxes on the business based on the business’s profits
- assess health of the business as they provide jobs and contribute to the community/ economy
competitors
rival businesses in the market
why do competitors want to see final accounts
- assess overall financial strength of the company
- compare profits for the year of businesses in the same industry as themselves
why do banks want to see final accounts
check ability of a business to repay loans
suppliers
businesses that supply goods and services to the company
why do suppliers want to see final accounts
assess how effectively the company would be able to pay for the goods supplied to it on credit
local community
people and authorities of the town or city where the business is located
why does the local community want to see final accounts
interested in the wellbeing of the community
want to know whether the business is financially stable and will remain in the community to provide jobs and the goods and services that the community needs
statement of profit or less // income statement
profit or loss generated by a business from its trading activities
statement that records sales revenues and costs of a business to determine the net profit and distribution of profit
order for profit and loss statement for FOR-PROFITS
sales revenue
cost of sales
gross profit
salaries
lighting
rent
expenses
etc
profit before interest and tax
interest
profit before tax
tax
profit for the period
dividends
retained profit
gross profit formula
sales revenue - cost of sales
cost of sales
cost of goods sold by a business over a period of time
profit before interest and tax formula
gross profit - expenses
dividends
money paid to shareholders from profit after interest and tax
retained profit
portion of the profit the business keeps for its use after dividends
order for statement of profit or loss for a non-profit
sales revenue
cost of sales
gross profit
expenses
surplus before interest and tax
interest
surplus before tax
tax
surplus for period
retained surplus
non-profit social enterprise
works to improve social or environmental outcomes
need to reinvest any and all surplus by law
features of a profit or loss statement for non-profit social enterprises
pay no taxes to the government
pay no dividends to shareholders
record their profits as surpluses
statement of financial position (aka balance sheet)
business’s assets, liabilities and equity
assets
items an entity owns which have value
equity
value of shares issued by a company
assets formula
liabilities + equity
balance sheet for a for-profit order
non current assets
(list them)
non-current assets total
current assets
(list them)
current assets total
total assets
current liabilities
(list them)
total current liabilities
non-current liabilities
(list them)
total non-current liabilities
total liabilities
net assets
equity
share capital
retained earnings
total equity
non-current assets examples
buildings, machinery, vehicles, accumulated depreciation
current assets examples
cash
debtors
stock
current liabilities examples
overdrafts
trade creditors
short-term loans
non-current liabilities examples
mortgage
long-term loans
debtors: asset or liability
(and which type)
current asset
creditors: asset or liability
(and which type)
current liabilities
overdraft: asset or liability
(and which type)
current liabilities
cash
cash in hand and cash in bank account
current asset
debtors
money owed to a business by individuals or organisations
current asset
stock (inventory)
unsold goods, raw materials, and work-in-progress
current asset
liquidity
ease with which assets can be converted to cash
liquidity of current assets from most liquid to least liquid
cash
debtors
stock
current assets
converted into cash in less than one year
non-current assets
likely to be kept by business for over one year
current liabilities
debts and payables due in one year
non-current assets
funds owed by company paid back in over 12 months
banks overdrafts
business takes out more money from bank account than it had to deposit
current liability
short-term loans
money the business borrowed from a bank paid back in a shorter time
current liability
trade creditors
money a business owes another business when it bought goods or services on credit
mortgage
loan for immovable property (aka land or building) where the property is taken as collateral
net assets
total assets - total liabilities
retained earrnings
money a company has left at the end of the trading year after all costs, expenses, dividends and taxes
share capital
finance for a business that is raised through the issue of shares to new investors on a stock market
balance sheet for non-profit social enterprises order
non-current assets
(list)
total non-current assets
current assets
(list)
total current assets
total assets
current liabilities
(list)
total current liabilities
current liabilities
(list)
total current liabilities
total liabilities
net assets
equity
retained earnings
total equity
intangible assets
non-physical items of value owned by a company that have a lifespan of over an year
patents
licence/ grant that gives an inventor the exclusive right to make, use or sell a product for a specific period of time
copyright
legal protection that gives an author or creator the exclusive right to reproduce work for a specific period of time
goodwill
intangible value of a company derived from its ‘good nature’ in business
attributed to brand loyalty, patents, talent management, good relationships with customers
gives a business competitive edge over its rivals
monetary value = higher selling price
registered trademark
form of intellectual property that refers to a word, symbol or phrase that identifies a specific product and distinguishes it
depreciation
loss of value of a fixed asset over time
causes of depreciation of non-current (fixed) assets
wear and tear
obsolescence
wear and tear
working parts of factories and equipment damage and are deteriorated over time
obsolescence
when technology used in the asset has been surpassed by more recent innovations
the asset becomes obsolete
straight-line method of depreciation
value decreases evenly over its useful life
straight-line depreciation formula for annual depreciation
(purchase price - residual value)/
estimated useful life
units of production method of depreciation
calculates loss in value of an asset by estimating the units produced annually
units of production method formula for annual depreciation
(yearly units of production/ total estimated lifetime production) * (original value of asset - residual value)
advantages of straight-line method
easy to calculate and apply
complete value of the asset is accounted for in the scrap value
disadvantages of straight-line method
assumes the value is used evenly throughout its life, which is not the case for most assets
useful life of some assets cannot be predicted and the scrap value is an estimate, so the depreciation method is not completely accurate
units of production method advantages
more realistic for many types of assets; provides a more accurate picture of the loss of value due to wear and tear
units of production method disadvantages
more complex to calculate
which assets is straight-line method better
assets that operate in a consistent way throughout the life of the asset and have a predictable life span
less expensive items
assets that don’t become obsolete over their life span
which assets is units of production method better
assets with varied levels of use over time
more expensive assets
