3.4 Final Accounts

Income Statement (The Main Final Accounts)

Shows the records of income and expenditure flows of a business over a period of time. Establishing whether a business is making a profit or loss.

Three Parts of the Income Statements

1) Trading Account

2) Profit and Loss Account
3) Appropriation account

Trading Account

• Shows the difference between the sales revenue and the cost of the business of those sales, this is also called the Gross Profit.

Profit and Loss Account

• Uses the Gross Profit and subtracts the expenses, interest and taxes that a business has. Forming the Profit for period.

Appropriation Account

Uses Profit for period and takes away dividends, giving the Final Retained Profit.

The Balance Sheet

A financial statement that outlines the assets, liabilities and equity of a firm at a specific point in time.

The Three Parts of the Balance Sheet

1) Assets

2) Liabilities

3) Equity

Assets

Resources of Value that a business owns or that are owed to it. There are non-current assets also called fixed assets and current assets

Non-current Assets

Long-term assets that last more than 12 months, and are necessary for business operations.

Current Assets

Short-term assets that last in a business for up to 12 months

Liabilities

A firm’s legal debts or what it owes to other firms, financial institutions or individuals. There are non-current liabilities and current liabilities

Non-current Liabilities

Also known as long-term liabilities are long-term debts or borrowings payable after more than 12 months.

Current Liabilities

Short-term debts that are payable within 12 months.

Equity

Refers to the amount of money that would be returned to a business if all the assets were liquidated.

Liquidation

Situation where all of a firm’s assets are sold off to pay any funds owing.

Intangible Assets

Assets that are non-physical in nature, yet still are valuable to a company’s long term success.

Types of Intangible Assets

• Patents

• Goodwill

• Copyright Laws

• Trademarks

Patents

Provide inventors with the exclusive rights to manufacture, use sell or control the product or process they invented. Most patents last around 20 years.

Goodwill

The value of positive or favorable attributes that relate to a business.This includes good customer base and relations, a strong brand name, highly skilled employees, a desirable location and the good reputation a firm has with its clients.

Copyright Laws

Legislation that provides creator with the exclusive right to protect the production and selling of their artistic or literary work. Most copyright laws last between 50 to 100 years after the death of a creator.

Trademarks

Recognizable symbols, words, phrases or design that is officially registered and that identifies a product or business. Most trade marks have a renewable period of 15 years.