3.4) Final accounts

Final accounts

the financial statements published for a specific trading period, that all limited companies are legally obliged to report

importance of final accounts on stakeholders

• directors, owners, shareholders

  • check the financial performance and hold directors accountable to their use of the company’s finance

• managers

  • use it as a data source to support decision making

• external stakeholders

  • assess the financial performance and make rational judgements

• potential investors

  • investment prospects

profit and loss account

a financial record that shows he profit or loss for a business after all costs have been deducted rom its revenues, per time period

cost of sales

direct CoP for production

expenses

indirect CoP for running the business

gross profit

the amount of profit from a firm’s ordinary trading activities

profit/net income before interest and tax

profit before deducting interest repayments and taxation

profit/net income after interest and tax

the value of profit a business has at its disposal of all costs are deducted

dividends

the payments that a company makes to its shareholders from its profit after interest and tax

balance sheet

a financial statement showing the vale of an organization’s assets and liabilities at a particular point in time

assets

the items of value that a business owns

liquidity

ability to turn into cash

liabilities

the debts of a business owned to others; including money owed to banks or trade creditors

equity

the amount of money that would be returned to a business if all of the assets were liquidated

current assets

the short-term and liquid assets of a business that are intended to be used up within a year of the balance sheet date

list of current assets

• cash and cash equivalents

• accounts receivable/debtors (customers yet to pay)

• stock/inventory

• [prepaid expenses and investments]

non-current assets

long term assets that are expected to last more than 12 months from the balance sheet date

list of non-current assets

• property (land, buildings)

• equipmet

• less accumulated depreciation (should be subtracted)

current liabilities

short-term debts that need to be repaid within 12 months of the balance sheet date

list of current liabilities

• bank overdraft

• trade creditors/accounts payable

• short-term bank loans

• [accrued expenses]

• [noted payable]

• [deferred revenue]

non-current liabilities

long term debts or borrowing payable by the business after 12 moths of the balance sheet date

list of non-current liabilities

• long term bank loans

• mortgages

working capital

the difference between current assets and current liabilities; money available for the day to day running of the business

Net assets

the overall value of a firm’s assets after all its liabilities are accounted for;
total assets - total liabilities

Share capital

the value of equity in a company funded by shareholders; this value can increase when more shares are issued

retaine earnings

the amount of money that remains after all costs have been paid and allocating a proportion to shareholders; recorded in both the income state and balance sheet (as a source of equity)