3.2 Final Accounts Flashcards
(12 cards)
What’s the purpose of financial accounts?
- measure performance over time
- provide info for stakeholders
- help decision making
- help to comply with law
Profit and loss account - defenition and structure
Show the financial performance of a business over a period of time
Structure:
- Sales revenue (total sales income)
- Cost of goods sold
- Gross profit (sales revenue - cost of goods sold)
- Expenses
- Profit before tax and interest / net profit (Gross profit - expenses)
- Interest
- Profit before tax (Net profit -interest)
- Tax
- Profit for period
- Dividends
- Retained profit
Balance sheets - definition and structure
Shows the financial position of a business at a specific point in time
Structure:
non current (fixed assets)
current assets
Total assets
current liabilities
non current (long term) liabilities
Total liabilities
Net assets
Equity
share capital
retained earnings
Total equity
Accounting equation
Assets = liabilities + equity
Current assets
short-term assets that a business expects to convert into cash, sell, or consume within one year
E.g. cash, inventory
Non current assets
long-term assets that a business uses over time and doesn’t expect to convert into cash within one year
E.g. machinery, land etc
Non current liabilities
They represent long-term obligations a business owes and doesn’t need to settle within the next 12 months.
Current liabilities
Current liabilities are debts or obligations a business must pay within 12 month
E.g. short term loans or overdraft
Net assets
Total assets - total liabilities
Net assets = equity
Dividends
A portion of a company’s profits that is distributed to shareholders, usually in the form of cash or additional shares.
Creditors
Debtors
