Chapter 3.4 - Final accounts Flashcards
Balance sheet
Contains financial information about an organization’s assets, liabilities, and the capital invested by the owners.
Displays the firm’s financial situation
Book value
The value of an asset as shown on a balance sheet.
The market value of assets can be higher than its book value because of intangible assets (brand value, goodwill)
Cost of goods sold (COGS)
Refers to the direct costs of producing or purchasing stock that has been sold to customers
Creditors
Suppliers who allow a business to purchase goods/services on trade credit
Current asset
Refers to cash/liquid assets that is likely to be turned into cash within 12 months of the balance sheet date
(Cash, debtors, stocks)
Current liabilities
Debts that must be settled within one year of the balance sheet date
(Bank overdrafts, trade creditors, short-term loans)
Depreciation
The fall in the value of noncurrent assets over time, caused by wear and tear (asset being used) or obsolescence (outdated)
Expenses
Indirect or fixed costs of production
(Administration charges, management salaries, insurance premiums, and rent)
Final accounts
The published annual financial statements that all limited liability companies are legally obliged to report
(balance sheet and profit and loss statement)
Goodwill
An intangible asset which exists when the value of a firm exceeds its book value (value of the firm’s net assets)
Gross profit
The difference between the sales revenue of a business and its direct costs incurred in making or purchasing the products that have been sold to its customers
Historic cost
Refers to the purchase cost of a particular fixed asset. Used in the calculation of depreciation
Intangible assets
Noncurrent assets that do not exist in a physical form but are of monetary value
(such as goodwill, copyrights, brand names, and registered trademarks)
Net assets
Show the value of a business to its owners by calculating the value of all its assets minus its liabilities. This figure must match the equity of the business in the balance sheet
Noncurrent assets
Items owned by a business, not intended for sale within the next 12 months, but used repeatedly to generate revenue for the organization
(property, plant, equipment)
Noncurrent liabilities
The debts owed by a business, which are expected to take longer than a year from the balance sheet date to repay
Profit
The surplus that a business earns after all expenses have been paid for from the firm’s gross profit
The profit and loss account
A financial record of a firm’s trading activities over the past 12 months, showing all revenue as well as costs and revenues during this time
Residual value/scrap value
An estimate of the value of the noncurrent asset at the end of its useful life
Retained profit
The amount of profit after interest, tax, and dividends have been paid. It is then reinvested in the business for its own use
Share capital
Refers to the amount of money raised through the sale of shares. Shows the value raised when the shares were first sold, rather than their current market value
Straight line method
A means of calculating depreciation that reduces the value of a fixed asset by the same value each year throughout its useful life
Units of production method
Calculating depreciation allocates an equal amount of depreciation to each unit of output rendered by a noncurrent asset
Window dressing
Refers to the legal act of creative accounting by manipulating financial data to make the results appear more appealing
