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profit or loss account
financial statement of a firm’s trading activities over a period of time (usually one year)
profit
the positive difference between a firm’s revenues and its costs (revenue - cost)
revenue
the inflows of money from ordinary trading activities
costs
the outflows of money from a business arising from its operations
trading account
show the difference between a firm’s sales revenue and costs of production or purchases
gross profit
the amount of money you are left with after deducting the cost of goods sold from revenue
cost of sales (COS)
the accountant’s term for direct costs of the goods that are actually sold
(opening stock + purchases) - closing stock
expenses
the indirect costs of production (administration charges, salaries, insurance, etc)
dividends
the amount of profit after interest and tax that is distributed to the owners of the company
retained profit
how much money is kept by the business for its own use of internal sources of finance
the balance sheet
one of the annual statements that all limited liability companies are legally required to produce for auditing purposes
assets
items of monetary value owned by a business
liabilities
money a business owes to lenders or suppliers
net assets
shows the value of a business to its owners
total assets - total liabilities
equity
the value of the business that belongs to the owners (MUST match to net assets)
share capital
the amount of money raised through the sale of shares
retained earnings
the total amount of increased profit after interest, tax and dividends have been paid
intangible assets
non-physical and non-current assets that have the ability to earn revenue for a business, such as brand names, goodwill, trademarks, copyrights and patents
branding
an indefinite asset as brand recognition and brand loyalty stay with the company (brand recognition and brand value play a big role in helping to drive global sales)
patents
provide legal protection for inventors, preventing others from copying their creation for a fixed number of years (pay fee to copy/use the idea)
copyrights
provide legal protection for the original artistic work of the creator, such as an author, photographer, painter, or musician (must ask permission to be used)
goodwill
an intangible asset which exists when the value of a firm exceeds its book value (aka net assets value).
(firm’s reputation and corporate image and business connections)
trademarks
distinctive signs that uniquely identify a brand, product, or business entity. (expressed by names, symbols, phrases, or images)
depreciation
the fall in value of non-current assets over time
wear and tear
non-current assets such as computers and motor vehicles being used repeatedly
obsolescence
newer and better products being available, so the demand and value of existing non-current assets falls
straight line method
reduces the value of a non-current asset by the same value each year throughout its useful life.
(annual depreciation = purchase cost/lifespan)
residual value
estimate of the value of the non current asset at the end of its useful life
units of production method
allocates an equal amount of depreciation to each unit of output rendered by a non-current asset. calculates depreciation based on physical output
depreciation per unit = (purchase cost - scarp value / expected number of units over a lifetime
depreciation expense = depreciation per unit x number of units sold
Note 
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