3.4 Final Accounts

Balance sheet

Contains financial information about an organization’s assets, liabilities, and capital invested by the owners, showing a snapshot of the firm’s financial situation.

Book value

Value of an assets shown on a balance sheet. The market value of an asset can be higher than its book value because of intangible assets such as the brand value or goodwill.

Cost of good sold (COGS)

Cost of sales (COS).

Direct costs of producing and purchasing stock that has been sold to customers.

Creditors

Suppliers who allow a business to purchase goods and or services on trade credit.

Current asset

Cash or any other liquid assets that is likely to be turned into cash within 12 months of the balance sheet data.

Current liabilities

Debts that must be settled within one year of the balance sheet date such as bank overdrafts and trade creditors.

Depreciation

Fall in the value of non current assets over time, caused by wear and tear (due to the asset being used) or obsolescence (out-dated).

Expenses

Indirect or fixed costs of production, such as administration charges, management salaries, insurance premiums, and rent.

Final accounts

Published annual financial statements that all

Goodwill

Intangible asset which exists when the value of a firm exceeds its book value (value of the firm’s net assets).

Gross profit

Difference between sales revenue and direct costs incurred in making or purchasing the products that have been sold to its customers.

Historic cost

Purchase cost of a particular fixed asset. It is used in the calculation of depreciation.

Intangible assets

Non current assets that do not exist in physical form but are of monetary value, such as goodwill

Net assets

Value of a business to its owners by calculating the value of all its assets minus its liabilities. Must match the equity of the business in the balance sheet.

Non current assets

Items owned by a business, not intended for sale within the next 12 months, but used repeatedly to generate revenue for the organization, such as property, plant, and equipment.

Non current liabilities

Debts owned by a business, which are expected to take longer than a year from the balance sheet date to repay.

Profit

Surplus that a business earns after all expenses have been paid for from the firm’s gross profit.

Profit and loss account

Financial record of a firm’s trading activities over the past 12 months, showing all revenues as well as costs and revenues during this time.

Residual value (scrap value)

Estimate of the value of the non-current asset at the end of its useful life.

Retained profit

Amount of profit after interest, tax, and dividends have been paid. Reinvested into the business.

Share capital

Amount of money raised through the sale of shares. Shows the value raised when the shares were first sold, rather than the current market value.

Straight line method

Means of calculating depreciation that reduces the value of a fixed asset by the same value each year throughout its useful life.

Units of production method

Calculates depreciation by allocating an equal amount of depreciation to each unit of output rendered by a non current asset.

Window dressing

Legal act of creative accounting by manipulating financial data to make the results appear more appealing.