3.4 - Final accounts

What is the purpose of final accounts?

To present a true and fair view of the financial position of a business to all stakeholders.

What are the two important sets of financial documents in final accounts?

The profit and loss account and the balance sheet.

What is calculated in the trading account?

Gross profit or gross loss.

What does the profit and loss account show?

A firm’s profit or loss after all production costs have been subtracted from revenues.

What are the types of final accounts?

Trading account, profit and loss account, profit and loss appropriation account, and balance sheet.

What does the balance sheet display?

Assets and liabilities of a business at a specific point in time.

What is creative accounting?

The legal manipulation of financial statements to present more favorable figures.

What is retained profit?

The portion of net profit that is kept in the business after dividends are paid.

How do you calculate gross profit?

Sales revenue minus cost of sales (COGS).

What are the two methods of depreciation?

Straight line method and units of production method.

Define assets in terms of final accounts.

Possessions of a business that have a monetary value.

What is the formula for calculating depreciation using the straight line method?

Annual depreciation = (Purchase cost - Residual value) / Useful lifespan.

What does the appropriations account show?

How the net profit is allocated among different uses, including dividends and retained profit.

What is goodwill?

The reputation and established networks of an organization that adds value above physical assets.

What is the accounting equation?

Assets = Liabilities + Owner's Equity.

What is the formula for calculating Cost of Goods Sold (COGS)?

Opening stock + Purchases - Closing stock.

What are intangible assets?

Non-physical assets of a business that have monetary value, such as patents and trademarks.

What is the definition of liabilities?

Debts owed by a business to others.

What is the significance of the balance sheet date?

It refers to the specific date at which the financial position of the business is stated.