3.4: IB BUS - Finance and Accounting

Info and meaning

What are accounts?

Financial Records of a business transactions

What are accounts for?

They provide information to group within and outside an organization. They help keep track of assets, liability, revenues and expenses.

Accounts can help answer questions in business sectors like:

Business Managers, Workforce, Banks, Investors, Local Community, Customers, ETC.

What is Final Accounts?

They are the published financial statements of an organization, they are made available to and used by different stakeholders.

What are the two financial documents in a Final Account?

Profit and Loss Account (Income Statement), Balance Sheet (Financial Position).

Who looks at a Final Account?

Business Managers, Workforce / Employees, Local Community, Government and Tax authorities, Investors/ Shareholders / Potential Investors, Banks, Creditors / Suppliers, Customers, Competitors.

What are some limitation for accounting info?

It is common for stakeholders to believe that because accounts are based on “Numbers” and not descriptive words they must be accurate and fair. Unfortunately, this is not always the case.

What are Financial Statements also called?

Final Accounts

What is the Window Dressing Method?

This practice is done to intentionally manipulate business’s financial statements or investment portfolios to create a misleadingly favorable impression of their performance or financial health just before a reporting period ends. (Insider Trading)

What is a Profit and Loss account (Income Statement)?

This records the revenue, cost and profit (or loss) of a business over a given period of time.

What is a Balance sheet (Statement of Financial Position)?

It is an accounting tool that records the values of a business’s assets,liabilities and shareholders equity at one point in time.

What do Balance Sheets (Statement of Financial Position) show?

They show the net worth of a company, the difference between the value of what a company owns (Assets) and what it owes (Liabilities)

What kind of accounts/sections are in a Profit and Loss account? (Income Statement)?

A Trading Account, A Profit and loss section, Appropriation account (Statement of retained earnings).

In what order do the accounts/sections go in the Profit and Loss account (Income Statement)?

It goes in the order of Trading Account, Profit and Loss accounts, Appropriation Account.

What is a Trading Account?

It shows how Gross Profit (or loss) and how it is made from the trading activities of the business.

What is A Profit and Loss Account in the Profit and Loss Account (income Statement) ?

This section calculates both the operation cost (Profit before tax am interest) and the profit after tax of the business.

What is the Appropriation account?

This shows how the profits after tax of the business are distributed between the owners in the form of dividends to the company shareholders and as retained profit.

What are dividends?

They are payments from a company’s profit (After interest and tax) paid to the shareholders (Owners) of the company.

What is Cost of Sales (COS)?

It is the direct costs of production of a product/service.

What is Sales Revenue?

It is the money an organization earns from selling goods and services.

In the Profit and Loss Account (Income Statement), what is surplus for?

It is for non-profit entities, you replace “Profit” for surplus.

Shareholder’s Equity in the Balance Sheet comes from what two main sources?

It comes from the share capital and the retained earnings.

What do Balance Sheets Contain?

Non Current Assets (Fixed Assets) and Current Assets.Current Liabilities and Non Current Liabilities (Long term)