3.4 Final Accounts

Income Statement

A statement that records sales revenues and costs of a business to determine the net profit and distribution of profit; also known as the statement of profit or loss.

Gross Profit Calculation

gross profit = sales revenue - cost of sales

Profit Before Interest or Tax Calculation

profit before interest or tax = gross profit - expenses

Dividends

A portion of a business’s profits distributed to the owners/shareholders.

Retained Profit

Money that a company has left at the end of the trading year after paying all costs, expenses, dividends and taxes.

Income Statement Steps

gross profit
expenses
profit before interest and tax
profit before tax
profit for period
dividends/retained profit

Income statement For Non-Profit Enterprise

No taxes
No dividends
Surplus

Statement of Financial Position/Balance Sheet

A statement that records a business's assets, liabilities and equity; also known as the balance sheet.

Assets

An item of property that has value and is owned by a person or business.

Liabilities

Being legally responsible for something.

Assets Calculation

assets = liabilities + equity

Statement of financial position Steps

current and non-current assets
total assets
current and non-current liabilities
total liabilities
Net assets
equity
total equity

Current Assets

Cash and other assets that a business plans to convert into cash in less than one year

Non Current Assets

Assets that are likely to be kept by the business for more than one year.

Types of Current Assets

Stock
Debtors
Bank
Cash

Liquidity

The ability of a business to convert its current assets into cash.

Current Liabilities

Debts and other payables that are due within one year.

Types of Current Liabilities

Bank Overdrafts
Short-term loans
Trade Creditors

Net Assets

The total assets of a business minus the total liabilities.

Two Elements of Equity Section in a Balance Sheet:

share capital
retained earnings

Statement of financial position for non-profit social enterprises

no shareholders
no share capital in the equity

Intangible Assets

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

Patent

A licence or grant that gives an inventor the exclusive right to make, use or sell a product for a specific period of time.

Copyright

Legal protection that gives an author or creator the exclusive right to reproduce work for a specific period of time.

Trademark

A form of intellectual property that refers to a word, symbol or phrase that identifies a specific product and distinguishes it from other products.

Goodwill

the intangible value of a company derived from its good nature in business

Purpose of accounts for management

track changes, assess profits, evaluate asset values, monitor shareholder investments, and determine the company’s ability to cover debts.

Purpose of accounts for owners or shareholder

See how effectively their money has been invested and how much they will receive in dividends

Purpose of accounts for employees

to understand the business’s financial stability and job security, and to negotiate better wages based on its profits.

Purpose of accounts for government

assess tax obligations and evaluate the health of businesses so they can provide support, protect jobs, and maintain community stability when needed.

Purpose of accounts for competitors

assess a company’s overall financial strength and to compare its yearly profits with other businesses in the same industry.

Purpose of accounts for banks

check the ability of a business to repay loans.

Purpose of accounts for suppliers

to judge how reliably a company can pay for goods and services provided on credit.

Purpose of accounts for local community

understand whether the business is financially stable and likely to remain in the area, continuing to provide jobs and essential goods and services.