Business Management 3.4 Final Accounts

Vocabulary flashcards covering key definitions and concepts from Topic 3.4 Final accounts.

Final accounts

Financial statements comprising the profit and loss statement and the balance sheet that businesses must keep to ensure financial control, planning, and legal compliance.

Profit and loss statement

A financial account showing the net profit or loss of a business over a specific trading period.

Cost of sales

Direct costs that a business can easily connect to the good or service it has produced, such as raw materials and barista salaries.

Expenses

Indirect costs that affect the business as a whole rather than a specific good or service, such as rent, utilities, and advertising.

Profit

The financial gain earned by a profit-making business after all expenses have been paid from its gross profit.

Surplus

The financial gain earned by a non-profit business after all expenses have been paid from its gross surplus.

Balance sheet

A financial statement providing a snapshot of the value of a firm at a specific point in time, usually the last day of the financial year.

Assets

Items of monetary value that are owned by a business.

Non-current assets

Assets used for business operations that are expected to be retained and used for more than $12$\,months.

Current assets

Assets that are likely to be converted into cash within $12$\,months or less, such as cash, debtors, and stock.

Liabilities

Legal obligations of a business to repay its lenders or suppliers at a later date.

Current liabilities

Debts owed by a business that must be settled within $1$\,year, such as bank overdrafts and trade creditors.

Non-current liabilities

Long-term debts owed by a business that are due to be repaid after $12$\,months, such as mortgages and bank loans.

Debtors

Customers who have received goods or services from a business but will pay for them at a later date.

Trade creditors

Suppliers whom a business must repay for rendered goods or services.

Equity

The value of the business belonging to the owners, which represents the sources of finance in a firm.

Share capital

The total amount of money raised by a profit-making entity through the sale of shares.

Retained earnings

The portion of profit or surplus reinvested back into the business for its own use after all obligations and dividends have been paid.

Intangible assets

Non-physical non-current assets that can earn revenue for a business and provide legal protection for intellectual property.

Brands

Legally registered names used in the trading activities of a business.

Patents

Legal protections granted for product designs created by an inventor.

Copyrights

Legal protections for intellectual property such as songs, novels, theatre, and art.

Goodwill

An intangible asset representing the established reputation of a business.

Registered trademarks

Legal protections for specific logos used by a business.

Depreciation

The systematic loss of value of non-current assets over time, or the method of spreading purchase costs over their useful lifespan.

Wear and tear

A cause of depreciation where continuous use causes a non-current asset to wear out and break down.

Obsolescence

A cause of depreciation occurring when an asset's technology becomes redundant due to superior technology on the market.

Lifespan

The estimated useful life of a non-current asset.

Residual value

An estimation of the disposal, scrap, or trade-in value of a non-current asset at the end of its useful lifespan.

Accumulated depreciation

The sum of annual depreciation expenses calculated by multiplying the yearly depreciation by the number of years an asset has been used.

Net book value

The original historical purchase cost of an asset minus its accumulated depreciation.

Straight-line method

A depreciation method that reduces asset value by an equal amount each year, calculated using $\text{Annual depreciation} = \frac{\text{Purchase cost} - \text{Residual value}}{\text{Lifespan}}$.

Units of production method

A depreciation method based on usage, calculated as $\text{Depreciation expense} = \text{Depreciation per unit} \times \text{Number of units produced}$.

Insider trading

The unethical practice of using confidential financial or business information for private financial gain.