Unit 3.4 - Final Accounts Flashcards
What are final accounts?
Final accounts are the published accounts of an organization . They are used by different stakeholders such as shareholders, sponsors, managers, employees, financiers and investors.
What are the 2 main sets of financial statements?
- The Statement of Financial Position (Also known as the Balance Sheet)
- The Profit and Loss Account (Also known as the income statement)
How are final accounts used by internal stakeholders?
(Managers, Employees and Shareholders)
Can use final accounts to measure the performance of a business and thus negotiate pay deals or assess the level of job security
How are final accounts used by external stakeholders?
(Banks, Suppliers, Customers and the Government)
Interested in an organisations final account to enable them to make coherent and sensible decisions
What is an example of an external stakeholder evaluating a business’ final accounts?
Financiers such as commercial banks and other lenders use an organization’s final accounts to evaluate their ability to afford its debts (or borrowing)
What is the Profit and Loss Account?
The Profit and Loss Account show a firm’s profit or loss after all production costs have been subtracted from it’s revenue, calculated each year.
It is also known as the income statement or statement of profit or loss
What is the prescribed IB format for the Statement of Profit or Loss?
- ABC Ltd (profit-making entity) / ABC (non-profit entity): Surplus instead of profit
- Statement of Profit or Loss
for the year ended 31 December 20XX
1. Sales Revenue
2. Cost of Sales (COS)
3. Gross Profit/Surplus
4. Expenses
5. Profit/Surplus before Interest and Tax
6. Interest
7. Profit/Surplus Before Tax
8. Tax
9. Profit/Surplus for Period
10.Dividends (not fot non profit)
11. Retained Profit
What is the formula for Cost of Sales?
CoS = Opening Stock + Purchases - Closing Stock
What is gross profit?
Profit generated by a firm’s everyday trading activities.
Gross Profit = Sales Revenue - Cost of Sales
What are expenses? Provide Examples
A Firm’s indirect costs of production not including interests and tax as the firm has no control over these (Rent, marketing campaigns, management salaries, bank interest charges, accountancy fees, travel expenses, utilities, repairs and maintenance, insurance)
What is interest?
An additional percentage paid on loans at a rate set by the government
What is tax?
Compulsory deductions paid to the government as a percentage of a firm’s profits.
What is Profir for Period? What is the formula?
Actual value for profit earned by a business after all costs accounted for. Belongs to the owners of the business who can distribute as seen fit.
Profit for Period = Profit before Interest and Tax - Tax - Interest
What are dividends?
Payments of a company’s profit for period to shareholders of the company. Amount paid in dividends is decided by the company’s board of directors.
What is retained profit? What is the formula?
Money that is kept as an internal source of finance.
Retained Profit = Profit for Period - Dividends
