Final Accounts Flashcards
Introduction to final accounts.
Every business needs to know:
● How much profit did it make this year?
● How much is the business worth?
To find out this information a business must prepare Final Accounts
Final Accounts include:
Income Statement (Record Book 2)
Statement of Financial Position (Record Book 2)
Income statement
this is made up of a trading account and profit and
loss account
Trading account
calculates the gross profit that the business has
made from selling its products and services
Profit and loss account
calculates the net profit that the business
has made after deducting expenses from the gross profit.
Appropriation account
shows how the profit will be shared out to its
shareholders and any profits from previous years (called reserves)
Sales
the value of goods sold by the business
Cost of sales
is the total amount it cost the firm to produce the goods they actually sold
Purchases
Purchases: the cost of goods bought during the year.
Carriage inwards
Transport costs of bring goods to the business
Custom duty
A tax paid on goods imported from outside EU
Opening stock
The goods the business has at the start of the trading period
Closing stock
The goods the business has at the end of the trading period
Gross profit
This is the profit made by the business from selling goods
before any expenses taken away. Gross Profit = Sales - Cost of Sale
Net profit
This is the profit made by the business from selling goods after the expenses have been taken away. Net Profit = Gross Profit - Expenses
Depreciation
a reduction in the value of an asset over time. E.g. the
value of a car reduces over time due to rust and wear and tear. We will
look at Assets more closely in next section
Dividends
This is a share of the net profit that is paid to shareholders
Bad debts
this is when a debtor is unable to repay the debt that he owes
to the business so the money is written off as an expense
Carriage outward
Transport costs of bring goods to the Custom
Statement of Financial Position (SOFP)
this account shows the year end value
of the business’ assets, liabilities and capital structure.
Fixed assets
these are assets that can be changed into cash quickly and will be used up within one year e.g cash, debtors, stock
Debtor
this is someone who owes the business money
Creditors Amounts Falling Due Within 1 Year
these are short-term debts
(under 1 year) that are owed by the business e.g creditors, unpaid bills (accruals)
Creditors
these are people that the business owes money to
Working capital
this is the difference between the business’ current assets and
their creditors amounts falling due within 1 year (Current Assets - Creditors
Amounts Falling Due Within 1 Year = Working Capital)
