3.4 Final accounts

Intellectual property

________: asset that has been developed from human ideas and knowledge.

Goodwill

________ arises when a business is valued at or sold for more than the balance sheet values of its assets.

Balance sheet

________= Statement of financial position: accounting statement that records the values of a businesss assets, liabilities and shareholders equity at one point in time.

Dividends

________: share of the profits paid to shareholders as a return for investing in the company.

Window dressing

________: presenting the accounts of a business in the best possible, or most flattering, way which could potentially mislead users of accounts.

Gross profit

________: equal to sales revenue less cost of sales.

Annual depreciation

________ attempts to record capital expenditure over the useful life of an asset and avoids recording this expenditure as a one- off cost when the asset is purchased.

Window dressing

presenting the accounts of a business in the best possible, or most flattering, way which could potentially mislead users of accounts

Gross profit

equal to sales revenue less cost of sales

Sales revenue (or sales turnover)

total value of sales made during the trading period = selling price x quantity sold

Cost of sales (or cost of goods sold)

direct cost of purchasing the goods that were sold during the financial year

Operating profit (net profit or profit before interest and taxation)

gross profit minus overhead expenses

Profit after tax

operating profit minus interest costs and corporation tax

Dividends

share of the profits paid to shareholders as a return for investing in the company

Retained profit

profit left after all deductions, including dividends, have been made; this is "ploughed back" into the company as a source of finance

Balance sheet = Statement of financial position

accounting statement that records the values of a businesss assets, liabilities and shareholders equity at one point in time

Shareholders equity

total value of assets less total value of liabilities

Share capital

total value of capital raised from shareholders by the issue of shares

Intangible assets

assets that have no physical substance and are not financial instruments

Intellectual property

asset that has been developed from human ideas and knowledge

Straight-line depreciation

a constant amount of depreciation is subtracted from the value of the asset each year

Window dressing

Presenting the accounts of a business in the best possible, or most flattering, way which could potentially mislead users of accounts

Profit and loss account = Income statement = Statement of comprehensive income records

The revenue, costs and profit (or loss) of a business over a given period of time

Gross profit

Equal to sales revenue less cost of sales

Sales revenue (or sales turnover)

Total value of sales made during the trading period selling price x = quantity sold

Cost of sales (or cost of goods sold)

Direct cost of purchasing the goods that were sold during the financial year

Operating profit (net profit or profit before interest and taxation)

Gross profit minus overhead expenses

Profit after tax

Operating profit minus interest costs and corporation tax

Dividends

Share of the profits paid to shareholders as a return for investing in the company

Retained profit

Profit left after all deductions, including dividends, have been made; this is "ploughed back" into the company as a source of finance

Balance sheet = Statement of financial position

Accounting statement that records the values of a business's assets, liabilities and shareholders' equity at one point in time

Shareholders' equity

Total value of assets less total value of liabilities

Share capital

Total value of capital raised from shareholders by the issue of shares

Cash flow statement = Statement of cash flows

It shows where cash was received from and it what it was spent on

Intangible assets

Assets that have no physical substance and are not financial instruments

Goodwill

Goodwill arises when a business is valued at or sold for more than the balance sheet values of its assets

Intellectual property

Asset that has been developed from human ideas and knowledge

Straight-line depreciation

Constant amount of depreciation is subtracted from the value of the asset each year

Integrity

Accountants should act honestly in all dealings with clients and also with tax authorities and all other stakeholder groups. It means being straightforward, honest and truthful in all professional and business relationships

Objectivity

Accountants shouldn't allow bias, conflict of interest or the influence of other people to override their professional judgement

Professional competence and due care

Accountants are required to carry out their work with proper regard for relevant technical and professional standards. This means that nobody should undertake professional work which they are not competent to perform

Confidentiality

Accountants shouldn't disclose professional information unless they have specific a permission or a legal or professional duty to do so

Professional behavior

When breached, it leads to most complaints to the professional accounting bodies. Clearly, accountants should comply with all relevant legal obligations when dealing with a client's affairs and assist clients to do the same