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Business (Tina) > 3.4 - Final Accounts + Depreciation > Flashcards

3.4 - Final Accounts + Depreciation Flashcards

1
Q

Final Accounts

A
  • Outline the financial performance of a business over a period of time
  • For publicly-held companies, these are published in the annual report

Might include:

  • Statement of Profit & Loss
  • Balance Sheet
  • Cash Flow
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2
Q

Internal Stakeholders

A
  • Investors - current and potential - Should I invest (or continue to hold my share in the business)
  • Managers - Measure performance against targets
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3
Q

External Stakeholders

A
  • Banks - Should we lend to the business?
  • Suppliers - Should we give them trade credit
  • Employees, Customers, Government, etc…
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4
Q

Profit & Loss Account

A
  • Also known as Income Statement
  • A summary of the business’s financial performance over a given time period
  • Uses the revenue, cost and profit over a period of time to calculate how much money the “business has made”
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5
Q

Structure of Profit and Loss

A
  1. Statement of Profit & Loss for XX for year ended 31/12/2025
  2. Sales Revenue
  3. Costs of Sale
  4. Gross Profit
  5. Expenses
  6. Profit before interest and tax
  7. Interest
  8. Profit before tax
  9. Tax
  10. Profit per period
  11. Dividends
  12. Retained Profits
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6
Q

Sales Revenue

A

Price x Quantity

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7
Q

Costs of Sales

A

Costs x Quantity

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8
Q

Gross Profit

A

Sales Revenue - Costs of Sales

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9
Q

Expenses

A

Fixed or indirect cost not directly involved in production

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10
Q

Profit before interest and tax

A

Gross Profit - Expenses

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11
Q

Interest

A

Interest paid on any loan

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12
Q

Profit before tax

A

Profit before interest and tax - Interest

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13
Q

Tax

A

Pay tax on any profit
No profit = no tax (non-profit business)

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14
Q

Profit per period

A

Profit before tax - Tax

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15
Q

Dividends

A
  • The business may choose to pay out dividends to owners
  • The rest is retained, and put back into growing the business

Pros of paying dividends:

  • Satisfies shareholders who get a return
  • Possible impact on share price

Pros of not paying dividends:

  • Can retain the money and grow the business
  • May lead to higher profits and dividends in the future
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16
Q

Retained Profits

A

Profit for period - Dividends

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17
Q

What happens if the company is a non-profit enterprise?

A

Use “Surplus” rather than “Profit”

No dividend payments as a non-profit

Usually no tax is paid

  • Gross Profit = Gross Surplus
  • Profit before interest = Surplus before interest
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18
Q

Balance Sheet

A
  • Financial Statements contained in the Annual Report
  • Records the net worth of a business at one moment in time
  • Shows the profitability of a business over a certain period of time
19
Q

Structure of Balance Sheet

A

Statement of financial position for XX as at DD/MM/YY

Non-Current Asset

  • Property, plant and equipment
  • Accumulated Depreciation
  • Non-Current Assets (Net)

Current Asset

  • Cash
  • Stocks
  • Debtors

Total Asset

Current Liabilities

  • Bank Overdraft
  • Trade Creditors
  • Other short-term loans
  • Current Liabilities (net)

Non Current Liabilities

  • Borrowings Long-term
  • Non-Current Liabilities

Total Liabilites

Net Asset

Net Equity

  • Share capital
  • Retained earnings
  • Total Equity
20
Q

Assets

A

Items of monetary value owned by the business

21
Q

Non-Current Assets

A

Long-term assets - Used for > 12 months

  • Tangible - Property (land), plants (factory) and equipment (vehicles, machinery)
  • Intangible - Patents, copyrights, goodwill
22
Q

Current Assets

A

Assets that are likely to be converted into cash within 12 months (berfore the next account)

  • Cash
  • Stock
    Will be sold and then turn into cash
  • Debtors
    Customers who have bough our product will pay at a certain date in the future
23
Q

Things on the Balance Sheet

A
  1. Title
  2. Non-Current Assets
  3. Current Assets
  4. Total Assets
  5. Current Liabilities
  6. Non-Current Liabilities
  7. Total Liabilites
  8. Net Assets
  9. Equity
24
Q

Title of Balance Sheet

A

Statement of financial position for XX as at DD/MM/YY

25
Q

Non-Current Assets in Balance Sheet

A
  • Property, plant and equipment
  • Accumulated Depreciation
  • Non-Current Assets (Net)
26
Q

Current Assets in Balance Sheet

A
  • Cash
  • Debtors
  • Stock
  • Current Assets (Net)
27
Q

Total Assets

A

Non-Current Assets + Current Assets

28
Q

Current Liabilities in Balance Sheets

A
  • Bank Overdraft
  • Trade Creditors
  • Other short-term loans
  • Current Liabilities (net)
29
Q

Non-Current Liabilities in Balance Sheet

A
  • Borrowings Long-term
  • Non-Current Liabilities (Net)
30
Q

Total Liabilities in Balance Sheet

A

Current Liabilites + Non-Current Liabilites

31
Q

Net Asset

A

Total Asset - Total Liabilities

32
Q

Equity in Balance Sheet

A
  • Share capital
  • Retained earnings
  • Total Equity = Net Asset
33
Q

Liabilities

A

A financial obligation that must be paid in the future

34
Q

Current Liabilities

A

Debts of the business to be paid in less than 12 months

  • Bank Overdradt
  • Trade Creditors
    You have bought an input from another and will pay at a certain date in the future
  • Other short-term loans
35
Q

Non-Current Liabilities

A

Long term loans of the business longer than 12 months

36
Q

Net Assets

A
  • One measurer of the worth of the busines
  • If all assets were sold and debts paid, this is the amount left to go to investors
37
Q

Equity

A

Sum of all previous profits put back into the business

38
Q

Tangible assets

A

Assets that are physical

  • E.g. factory, land, vehicles
39
Q

Intangible assets

A

Assets that have no physical properties

  • And are not financial instruments (e.g. bank account)

Marketing-related

  • Trademarks, logos, brand names, slogans, internet domain sites

Technolgy-related

  • Patents

Contract-related

  • Franchises, licensing agreements

Goodwill

  • Value of the customer base and brand image
40
Q

Depreciation

A

The reduction in the value of an asset over time

For example, a business buys new machinery. The value of this will go down over time due to:

  • Operational wear - less reliable as one gets older
  • Outdated

Important to put it onto the balance sheet as we can see the real value of the asset over time

41
Q

Straight-line method of depreciation

A
  • The amount that an asset decreases every year is the same
  • Each year the asset depreciates by the same amount every year
  • (Original value - expected residual value) / Expected future life of asset
42
Q

Pros and Cons of Straight-line method of depreciation

A
  • Simple to calculate and understand
  • Useful for small-value assets which won’t have a significant impact on the balance sheet
  • Generally unrealistic - assets usually lose more value in earlier years
43
Q

Units of production method of depreciation

A
  • The assets depreciate according to the amount of production
  • The more an asset is expected to be used in a year, the more depreciation will be recorded

Formula: (Units of production in one year/total life units of production) x (Original value - expected residual value)

44
Q

Pros and Cons of Units of production method of depreciation

A
  • More depreciation in years of heavy use
  • More accurate
  • Harder to calculate

Business (Tina) (19 decks)

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