3.4 - Final Accounts Flashcards
what are final accounts?
documents which outline the financial performance of a business over a period of time
* publically held business -> on annual report
what are examples of final accounts?
- profit and loss
- balance sheet
- cash flow statements (forecasts)
what is the significance of final accounts for different internal stakeholders?
internal stakeholders:
investors
* evaluate whether they should invest in the business
managers
* see whether the business is being profitable, to see if any changes must be made to meet targets
employees
* may be interested in the financial performance of the business
what is the significance of final accounts for external stakeholders?
competition
* to see what they are competing against
government
* to see whether they are repaying their taxes properly
banks
* to see whether businesses are trustworthy -> to give loans
suppliers
* evaluate whether or not to give businesses trade credit
customers
* to see if a business is charging excessively high prices
pressure groups
what is a statement of profit and loss?
a summary of the business’s financial performance over a given period of time -> calculate the profitability of the business using revenue, cost and profit
what are the different sections of a profit and loss statement?
TITLE: statement of profit and loss for business xx for year ended ../../..
- sales revenue
- cost of sales
- gross profit
- expenses
- profit before interest and tax
- interest
- profit before tax
- tax
- profit for period
- dividends
- retained profit
what are the sections of a profit and loss diagram for a non-profit enterprise?
statement of profit and loss for business xx for year ended ../../..
- sales revenue
- cost of sales
- gross surplus
- expenses
- surplus before interest and tax
- interest
- surplus before tax
- tax
- surplus for period
- retained surplus
what is different for a profit and loss diagram when it is for a non-profit enterprise?
- all “profits” become “surplus”
- and dividends is removed
- most of the time tax is 0
what is the difference between a profit and loss and a balance sheet?
profit and loss
* financial statement over a period of time
balance sheet
* financial statement at a specific period of time
what is a balance sheet?
shows the financial status and value (net worth) of a business at a specific period of time
what is the structure of a balance sheet?
Statement of financial position for company xx as at ../../..
- non-current assets
- plant, property and equiptment
- accumalated depreciation ()
- non-current assets
- current assets
- cash
- stock
- debtors
- current assets
- total assets
- current liabilities
- bank overdraft
- trade credit
- other short-term loans
- non-current liabilities
- long-term borrowings
- non-current liabilities
- total liabilities
- net assets
- equity
- share capital
- retained earnings
- total equity
what is the difference between current and non-current assets?
- non-current assets
assets used for long periods of time (longer than 12 months)
(tangible - property, plant etc.
intangible - patent, trademark) - current assets
assets used for shorter than 12 months
(cash, stock - will be sold, and debtors - will pay back)
what is an asset
an item of monetary value that is owned by a business
what is a liability
a financial obligation that must be paid by the business in the future
what are tangible/intangible assets?
tangible
* assets that are physical in nature
intangible
* assets that are not physical in nature - have no physical properties
what should be true on a balance sheet?
net assets and equity should be the same
what is different about a balance sheet when it is a non-profit entity
share capital is removed - the only equity is retained earnings
what is depreciation
the reduction of value of an asset over time
what could be two reasons for depreciation
- operational wear
- outdates
what are two methods of depreciation
- straight line
- units of production method
what is a scrap value (depreciation)
the value of an asset when it is sold
what is a book value (depreciation)
the value of an asset in a specific year after subtracting depreciation from the original value
where is depreciation considered in the profit and loss/balance sheet
profit and loss
* expenses
balance sheet
* non-current assets
how is the straight line depreciation calculated?
if you know - value when bought, number of years expected use and scrap value:
use the equation
then subtract the same amount every year
