ch14 - company accounts

equity formula

Share Capital

+ Share Premium

+ Reserves

+ Retained Earning

company vs sole trader

• sole trader = owner and business are the same so no tax in accounts

• company has to pay tax so has: tax expenses, tax payables

profit/ loss layout

Revenue

- Cost of Sales

= Gross Profit

+ Other Income

- Distribution Costs

- Administrative Expenses

= Operating Profit

- Finance Costs

= Profit Before Tax

- Tax

= Profit for Year

what counts as an expense

• purchases

• production wages

• factory depreciation

• inventory write-downs

what counts as a distribution cost

• advertising

• sales commission

• delivery van expenses

• carriage outwards

what are administrative expenses

• Office wages

• Office rent

• Amortisation

• Irrecoverable debts

when do you recognise revenue

Revenue recognised when control passes to customer. ( goods delivered)

what are ordinary shares

• having voting rights

  • receive dividends

rights issue

existing shareholders can buy more shares - company gets cash ( cash increases)

bonus issue

no cash received - company gives extra shares ( mot more cash / money moves within equity from share premium → share capital)

retained earnings

accumulated profits

what is a provision

a liability where amount or timing is uncertain

• legal claim

• warranty claim

to recognise:

• present obligation

• probability >50%

statement of changes in equity

Shows movements in:

• Share capital

• Share premium

• Reserves

• Retained earnings

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Movements include:

✅ Profit

✅ Dividends

✅ Rights issue

✅ Bonus issue

✅ Transfers between reserves

difference between

• operating

• investing

• financing

• operating = main business activity

• investing = investment income

• financing = interest-related items

dividend

• distribution of profit