3.4 Final Accounts Flashcards
Define final accounts
published financial documents that report a firm’s financial performance and position,
used by internal + external stakeholders to make informed decisions.
State the purpose of final accounts to the different stakeholders (managers, employees, shareholders, financiers, suppliers, customers, government, competitors)
Managers: Assess business performance + support decision-making & strategic planning
Employees: Measure job security; negotiate pay & working conditions
Shareholders : Evaluate profitability & return on investment; decide on holding or selling shares
Financiers: Assess repayment ability before lending
Suppliers: Determine liquidity + ability to repay trade credit; set credit terms
Customers: Check financial stability and supply reliability, especially for long-term relationships
Government: Verify tax obligations; ensure legal compliance; assess job creation and economic stability
Competitors: Compare financial performance in the same industry
Define statement of profit or loss / Profit & Loss Account / Income statement
financial statement showing a business’s revenue + expenses over a period, resulting in its net profit or loss after all costs are subtracted.
Statement of profit or loss structure:
1) TITLE: Statement of profit or loss for [company], for the year ended [date]
2) dollar sign and units
Sales revenue
-Cost of sales
= gross profit (doesn’t include expenses like salaries, rent, etc)
-Expenses
Profit before interest and tax
- interest
Profit before tax
- tax
Profit for period
- dividends
Retained profit
Brackets for negatives
For a non-profit entity: surplus rather than profit, no dividends
Define state to of financial position
financial statement showing the assets, liability’s and equity of a business at a specific point in time
State structure of state t of financial position
TITLE: Statment of financial position as at (full date)
Units + dollar sign
Non-current assets
(property, plant & equipment / -accumulated depreciation)
Then calculate total non-current assets
Current assets
(Cash, debtors, stock)
Then calculate current assts
Calculate total assets (adding non current and current)
Current liabilities - short term-debts
(Bank overdraft, trade creditors, other short-term loans)
Then calculate current liabilities
Non-current liabilities - long term loans, mortgages, or bonds
(Borrowings — longterm)
Then calculate non-current liabilities
Then calculate total liabilities
Calculate net assets (total assets - total liabilities OR add up all items under equity (share capital + retained earnings)
Equity (fro non-profit only retained earnings not share capital)
+ retained earnings + share capital
Calculate total equity
**always check net assets = total equity
Define sales revenue (+ is it profit & loss or in balance sheet)
money earned from selling goods/services, calculated as price x quantity sold
Profit & loss
Define cost of sales (+ is it profit & loss or in balance sheet)
direct costs of producing goods/services sold; includes raw materials and salaries
Profit and loss
Define gross profit (+ is it profit & loss or in balance sheet)
Sales revenue - Cost of Sales; shows core profitability before indirect expenses
Profit & loss
Define expenses (+ is it profit & loss or in balance sheet)
indirect costs like rent, salaries, marketing; not directly linked to production
Profit and loss
Define profit before interest & tax (+ is it profit & loss or in balance sheet)
gross profit minus expenses; profit before external factors like tax/loans
Profit and loss
Define interest (+ is it profit & loss or in balance sheet)
cost of borrowing money; subtracted before profit is taxed
Profit and loss
Define tax (+ is it profit & loss or in balance sheet)
compulsory payment on profits to the government; reduces final net profit
Profit and loss
Define profit for the period (+ is it profit & loss or in balance sheet)
final profit after all expenses, interest and tax are subtracted; distributable to shareholders or retained
Profit and loss
Define dividends (+ is it profit & loss or in balance sheet)
share of profits paid to shareholders; decided by board of directors
Profit and loss
Define assets (+ is it profit & loss or in balance sheet)
esources owned by a business that have monetary value + are used to generate income or provide future economic benefits
(Machinery, buildings, furniture, stock, cash-in-bank)
Balance sheet
Define liabilities (+ is it profit & loss or in balance sheet)
A business’s financial obligations / debts that must be repaid to external parties, such as banks / lenders
(Loan, trade credit)I
Balance sheet
Define equity (+ is it profit & loss or in balance sheet)
owners investment in the business; made up of share capital and retained earnings
Balance sheet
Define net assets (+ is it profit & loss or in balance sheet)
total assets minus total liabilities, must equal total equity
Balance sheet
Define non-current assets (+ is it profit & loss or in balance sheet)
long-term resources used for over a year; not intended for immediate resale
Balance sheet
Define current assets (+ is it profit & loss or in balance sheet)
assets expected to be used or turned into cash within 12 months; includes cash, stock & debtors
Balance sheet
Define current liabilities (+ is it profit & loss or in balance sheet)
short-term debts payable within a year; includes overdrafts / trade creditors
Balance sheet
Difference between retained profits and retained earnings +(+ which is in profit & loss or in balance sheet)
• Retained profit = This year’s savings. In profit & loss
• Retained earnings = All your past savings added up. In balance sheet
