Unit 3.4

Question 1

Final Accounts

Answer 1

sets out the financial performance of a business over a trading period (most commonly, one year).

Question 2

Different value for stakeholders that want to know a firm’s Final Accounts (Internal stakeholders)

Answer 2

Shareholders- Interested to see where money was spent and the return on their investments. Based on financial performance, they may decide to hold, sell, or buy more of the company’s shares (stocks).

Employees- Interested to see the likelihood of increased pay, possibility of bonuses, and job security.

Managers- used to judge the efficiency of their business, to aid in setting targets, their own bonuses and for strategic planning.

Question 3

Different value for stakeholders that want to know a firm’s Final Accounts (External stakeholders)

Answer 3

Competitors- Used to make comparisons to their own final accounts. Helpful is strategic planning.

Government- Need to know for tax purposes, did they pay enough? (Or pay us enough to leave tax loopholes open… )

Lenders- to go over accounts to approve any funds

Suppliers- Decide the extent of credit that can be given
Potential Investors- Is this company worth my time and money?

Customers- Are the prices charged by this company fair? This can be understood by seeing their current Revenue.

Pressure Groups- Interested in Revenue made in comparison to how well the company is behaving in regards to their Triple Bottom Line and CSR.

Question 4

Profit and Loss account

Answer 4

records the revenue costs and profit (or loss) of a business over a given period of time (usually one year)

Question 5

Statement of Financial Position

Answer 5

often called a Balance Sheet, this final account shows the assets and liabilities/debts of a business to get a full understanding of the value of a company.

Question 6

Sales revenue

Answer 6

the value of all business transactions in a specific period

Question 7

Cost of Sale

Answer 7

these are the direct costs of purchasing the goods that were sold during the financial year.

Question 8

Gross profit

Answer 8

sales revenue - cost of sales. This is a broad measure of profit but leaves out some essential costs

Question 9

Profit and Loss Account (broken into three sections)

Answer 9

1. The trading account (This shows how gross profit (or loss) has been made from the trading activities of the business.)
2. Profit and Loss Account (where the money goes to)
3. Appropriation account (This final section of the income statement shows how the profits after tax of the business are distributed between the owners – in the form of dividends to company shareholders – and as retained profits.)

Question 10

Expenses

Answer 10

Overheads/Indirect Costs (3.3) are costs or expenses of the business that are not directly related to the number of items made or sold. These can include rent, management salaries, lighting costs, etc.

Question 11

Interest Rates

Answer 11

can change due to lender or government changes, so they are shown as an extra outside expense as controlled expenses are often compared year-to year.

Question 12

Limited Companies

Answer 12

pay corporation tax on their profits before paying dividends to their shareholders

Question 13

Assets

Answer 13

Items of monetary value that are owned by a business. This includes Non-Current (Fixed) and Current (Liquid) assets.

Question 14

Liabilities

Answer 14

A financial obligation of a business that it is required to pay in the future, in both the long (Non-Current) and short (Current) term

Question 15

Equity

Answer 15

Total value of all assets minus total value of all liabilities. Think of this as how much the company is worth.

Question 16

Share capital

Answer 16

The total value of capital raised from shareholders by the issue of shares. Only relevant for Limited Companies

Question 17

Non-Current Assets

Answer 17

sometimes called Long-Term Assets or Fixed Assets (lasting more than 12 months) are used to produce goods and services, e.g. land, buildings, vehicles, equipment, tools, and machinery.

Question 18

Current assets

Answer 18

short-term, liquid assets of the business that are intended to be used up within the year, i.e. cash, debtors and stock.

Question 19

Cash

Answer 19

This is the money a business has at its premises and in bank accounts, making it easily accessible.

Question 20

Debtors

Answer 20

These are customers who have received goods or services, but have yet to pay for them (trade credit). The typical credit period given to customers is between 30 and 90 days.

Question 21

Stock/Inventory

Answer 21

Inventory of goods for sale within a short period of time.
These assets can be liquidated fairly quickly if a company needs quick cash to handle a crisis or immediate need.

Question 22

Current Liabilities (aka Short term liabilities)

Answer 22

Current liabilities are debts that must be settled within one year of the Statement of Financial Position being issued/created.

Question 23

Long-term Liabilities

Answer 23

are debts that are due to be repaid after twelve months.

Question 24

Working capital

Answer 24

the amount of money available for the day-today running of a business.

Working capital= current assets - current liabilities

Question 25

Net assets

Answer 25

the overall value of a firm’s assets after all liabilities are accounted for.

Net Assets = Total assets −Total liabilities.

Question 26

Intangible Assets

Answer 26

non-physical fixed assets that have the ability to earn revenue for a business.

Question 27

Goodwill

Answer 27

the estimated value of an established customer base and of the reputation of a business.

Question 28

Intellectual property

Answer 28

An intangible asset that has been developed from human ideas and knowledge and the sale of those ideas and knowledge having a value to others who can benefit or make a profit from them

Question 29

Market value

Answer 29

The estimated total value of a company if it were taken over by another.

Question 30

Patents

Answer 30

provide legal protection for inventors, preventing others from copying their creation for a fixed number of years. Patents help to stimulate innovation, otherwise, people would simply copy what others have done.

Question 31

Copyright

Answer 31

provides legal protection for the original artistic work of the creator, such as an author, painter, or musician. To use the work of the copyrighted material, you must first ask permission and pay a fee or grant a percentage of royalties.

Question 32

Registered Trademarks

Answer 32

identify a brand, product, or business. They can be expressed by names, symbols, phrases, or images