3.4 Final Accounts

3 parts of the Statement of Profit and Loss

1. Trading Account

2. Profit & Loss

3. Appropriation

11 parts of the Statement of Profit and Loss

• Sales Revenue

• Cost of Sales

• Gross Profit

• Expenses

• Profit before tax and interest

• Interest

• Profit before tax

• Tax

• Profit for period

• Dividends

• Retained Profits

Mnemonic to remember order of Profit & Loss Account

Studying Cycles Generate Enthusiastic Practice In Prepping Thoroughly, Properly, Daily, Regularly

Window Dressing

Inflating the value of assets

Current assets

Assets that are likely to use within 12 months

Non-current assets

Assets that are likely to be used for more than 12 months

5 headings of the Statement of Financial Position

1. Non-current assets

2. Current assets

3. Current liabilities

4. Non-current liabilities

5. Equity

Mnemonic for Non-current Assets

Business Makes Many Accountants Passionate

Mnemonic for Current Assets

Can Dogs Sniff?

Mnemonic for Current Liabilities

Olive Trees Sway

Mnemonic for Non-current Liabilities

Let Me

Mnemonic for Equity

Sharks Can Really Eat

Intangible Assets

Non-physical items of value owned by a company that have a lifespan of more than a year

Patent

Licence/grant that gives an inventor rights to make/use/sell product for a specific period

Copyright

Form of legal protection given to the producers of literary or artistic works

Trademark

Distinctive mark, sign or symbol that a company or individual uses to distinguish itself from competitors

Goodwill

Intangible value of a company derived from its “good nature” in business

Depreciation

Loss in the value of a fixed asset overtime

Residual Value

Selling used assets for a second hand value

Wear and tear

• Most common cause of depreciation

• Working parts of equipment/factories will be damaged overtime

Obsolescence

Process of being no longer in use

Methods of calculating depreciation

1. Straight-line method

2. Units of production method

Advantages of straight-line method

• Easy to calculate

• Can be shown as a graph and/or table

Disadvantages of straight-line method

• Not completely accurate

• Assumes asset is used evenly throughout its life