3.04 Final Accounts

Purpose of Final Accounts

Include transactions, revenues, and expenses to help inform internal and external stakeholders of the position and performance of the business.

Final Accounts

Financial statements compiled by businesses at the end of a particular accounting period.

Limitations of Final Accounts

• A single year only, no trends shown.

• Ignore human resources

• No information on non-financial matters (brand perception, ethics)

• Only show past performances

Statement of Profit and Loss 

This represents all the income and expenditure flows of a business over a specific period of time. It establishes whether a company has made a profit or a loss.

Assets

Items of monetary value that are owned by a business, like cash, stock, and buildings.

Non-current assets

Any assets used for business operations and are likely to last more than 12 months. 

Current assets

Cash or any other liquid asset that can be turned into cash within 12 months of the balance sheet date. – cash, debtors, and stock.

Liabilities

A legal obligation of a business to repay its lenders or suppliers at a later date.

Non-current liabilities

Long-term borrowing which will take longer than 12 months to repay.

Current Liabilities

Debt to be settled within one year from the date of the balance sheet e.g., taxes or bank overdrafts.

Equity (capital and reserves)

Shows the value of the business belonging to the owners on the statement of financial position. It can appear as ‘shareholders’ equity’ or ‘owners’ equity’.

Share Capital

Money raised through the sale of shares (price when sold not current market value).

Retained Profits

Amount of net profit after interest, tax, and dividends are paid, that was reinvested. Profit belongs to the owners to do what they choose; that’s why it's in owners’ equity.

Limitations of the Statement of Financial Position

• Only shows one point in time

• Figures are estimates of the values of assets and liabilities 

• No universal format → difficult to compare

• No intangible asset and human capital

Intangible Assets

Non-physical fixed assets that can earn revenue for a business, e.g., brand names, patents. They are legally protected by intellectual property rights.