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Business > Final accounts > Flashcards

Final accounts Flashcards

1
Q

Final accounts

A

legal requirement of financial statements that businesses have to fulfil at the end of a particular accounting period

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2
Q

role of final accounts

A

help with the organisation of the business since they include transactions, revenues and expenses, but also help inform internal and external stakeholders of the business situation

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3
Q

examples of internal stakeholders

A

shareholders, managers, employees

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4
Q

examples of external stakeholders

A

the Government, customers, suppliers, the local community etc.

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5
Q

purpose of final accounts for SHAREHOLDERS

A

Shareholders use the financial performance to decide on whether to keep their shares, sell them or maybe buy more.
They are also interested in the performance of the company’s directors to decide ways of motivation or maybe replace them.

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6
Q

purpose of final accounts for MANAGERS

A
  • interested in the performance of the business for target setting ands strategic planning, alongside the firm’s efficiency
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7
Q

purpose of final accounts for EMPLOYEES

A
  • interested in the performance for “job security” and possible increases in salaries
  • could also lead to disputes and creation of unions, if the company is profitable and does not increase the employees’ salaries
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8
Q

purpose of final accounts for the GOVERNMENT

A
  • interested in a business’s profitability for tax purposes
  • to verify that the company is following the law
  • in cases of big multinational companies, the Government expects an increase in employment
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9
Q

purpose of final accounts for the SUPPLIERS

A
  • interested the the firm’s final accounts to ensure they get paid on time or to grant more credit if necessary
  • if the firm has a debt to pay towards suppliers, then they can see if it will be possible to get paid or not
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10
Q

purpose of final accounts for CUSTOMERS

A
  • interest to see if the firm keeps supplying the product
  • gives them an idea to continue being customers of the firm or look for alternatives
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11
Q

purpose of final accounts for COMPETITORS

A
  • to compare performances
  • to compare sales revenues and level of profitability
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12
Q

purpose of final accounts for FINANCERS

A
  • to verify if the business can pay back loans
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13
Q

purpose of final accounts for the LOCAL COMMUNITY

A
  • if the business is profitable then it might create jobs and improve the living conditions of the local community
  • if the business creates environmental issues then it will have. an negative impact on the local community
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14
Q

2 main final accounts

A

profit and loss account, balance sheet

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15
Q

profit and loss account (aka income statement)

A

shows the records of income and expenditure flows of a business over a given period of time
divided into 3 parts: a) the trading account, b) the profit and loss account or section, and c) the appropriation account

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16
Q

balance sheet (aka statement of financial position)

A

a financial statement that outlines the assets, liabilities and equity of a business at a specific point of time

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17
Q

a) the trading account

A

the first part of the income statement basically shows the difference for the business’s sales revenue and the cost of those sales for the business

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18
Q

a) trading account formulas

A

gross profit= sales revenue-cost of sales
costs of sales (COGS) = opening stock + purchases - closing stock

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19
Q

cost of goods sold (COGS)

A

the direct cost of producing or purchasing the goods that were sold during the period

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20
Q

gross profit

A

difference between costs of goods sold and the sales revenue

21
Q

b) the profit and loss account (section)

A

second part of the income statement that shows the net profit before interest and tax and the net profit after interest and tax

22
Q

Net profit before interest and tax

A

gross profit - expenses

23
Q

Net profit before tax

A

net profit before interest and tax - interest

24
Q

Net profit after interest and tax

A

net profit before tax – corporation tax

25
Q

c) the appropriation account

A

final part of the income statement showing how the company’s net profit after interest and tax is distributed. This distribution could be either dividends or retained profit.

26
Q

Retain profit

A

Net profit after interest and tax - dividends

27
Q

dividends

A

the sum of money paid to shareholders decided by the board of directors of a company.

28
Q

retained profit

A

the amount of earning left after dividends and other deductions have been made.

29
Q

assets

A

items of monetary value that are owned by a business (i.e. cash, stocks, buildings). An asset could belong to a business but that does not mean it is paid for (i.e. a building could be worth a lot of money but its funded by debt). There a 2 types of assets: Fixed assets and current assets.

30
Q

non-current assets (fixed assets)

A

long term assets that last more than 12 months (i.e. buildings, machinery, cars, equipment). It is important to take the ‘loss of value’ of the asset into account; this is known as depreciation (i.e. machinery losses its value over time due to its depreciation).

31
Q

current assets

A

short term assets that last the firms up to 12 months. This could be: a) cash – money received from the sales of goods and services; b) debtors – money that’s its owned to the business and c) stock – includes raw materials, semi finish goods and finished goods (also know as inventory) .

32
Q

total assets

A

non-current assets + current assets

33
Q

liabilities

A

refers to a legal obligation of a business to repay its lenders or suppliers, basically what the business owns in debt. They are classified in long-term and current liabilities

34
Q

non-current liabilities

A

long terms debts that need to be paid after 12 months (i.e. loans, mortgages)

35
Q

current liabilities

A

short term loans that need to be paid before 12 months (i.e. unpaid suppliers, bank overdrafts and tax)

36
Q

total liabilities

A

current liabilities + non-current liabilities

37
Q

net assets

A

total assets – total liabilities

38
Q

equity

A

this shows the value of the business that belong to the owners (it could appear in the balance sheet as shareholders equity) . The Equity shows how the assets were financed

39
Q

share capital

A

it refers to the amount of money the firm raised trough the sale of shares when the share were first sold NOT their current market value. In other words, the value of equity in a business that is funded by shareholders, either through an initial public offering (IPO) or via a share issue.

40
Q

retained earnings

A

obtained from the profit and loss account it is also called ‘reserves’ since it included fund that were raised in previous years.

41
Q

equity

A

obtained from the profit and loss account it is also called ‘reserves’ since it included fund that were raised in previous years.

42
Q

NET ASSETS

A

EQUITY

43
Q

intangible asset

A

non-physicalassetthat generally has a useful life greater than one year. Even if they do not have physical value they can be very valuable for the business success or failure.

44
Q

patents

A

provide a legal protection for inventors preventing their creation is copied for a fixed number of years (normally 20 years). Therefore, it allows the inventor to have exclusive rights to commercial production of their invention for that period of time.

45
Q

goodwill

A

refers to the value of a firms’ image and reputation. it could also include the firm’s database, customer base or business connections.

46
Q

copyright laws

A

provides legal protection for the original artistic work of musicians, authors, photographers, painters, film producers, etc. They normally last between 50 to 100 years after the death of the creator and anyone who wants to use that work has to seek permission and normally pay a fee.

47
Q

trademarks

A

refers to any name, symbol, figure, letter, word, or mark officially registered that identifies a production or a business. If anyone oversteps someone else’s trademark they can be sued. Trademarks normally last for 15 years, are renewable and can be sold.

48
Q

examples of intangible assets

A

patents, goodwill, copyright laws, trademarks, symbol, catchphrases,

Business (39 decks)

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