Unit 3.4 Financial accounts

Question 1

financial accounts (2 statements

Answer 1

• profit and loss acount
• balance sheet

Question 2

profit and loss account/ income statement

Answer 2

reports the value of assests and liabilities of a business at a particular point in time

Question 3

what groups or indivisuals are interested in financial reports?

Answer 3

shareholders
employees
managers
competitors
government
financiers
suppliers
potential investors

Question 4

why are shareholders interested in financial reports?

Answer 4

the owners of a company are intereseted to see where their money was spent and the return on their investment. this helps them decide to sell, buy or hold shares

Question 5

why are employees interested in financial reports?

Answer 5

employeess are interested in the businesses financial account to assess the likleyhood of or present a case for a pay raise. assess degree of job security

Question 6

why are managers interested in financial reports?

Answer 6

they use financial accounts to judge the operation efficiency of the organization. used for targets and strategic planning

Question 7

why are competitors interested in financial reports?

Answer 7

to make comparisons to their own performance

Question 8

why are government interested in financial reports?

Answer 8

tax authorities ensures payed full correct amount on their corporate profits

Question 9

why are financiers interested in financial reports?

Answer 9

scrutinize the accounts before approving any funds

Question 10

why are suppliers interested in financial reports?

Answer 10

to determine the extent to which trade credit should be given. suppliers need to know if their lcients are financially stable so theyre assured of recieving payments

Question 11

why are potential inevstors interested in financial reports?

Answer 11

ratio analysis to asses wether thei investment would be financialy worthwhile measuring profitability ratio and liquidity ratios

Question 12

profit

Answer 12

positive difference between revenue and cost

Question 13

revenue

Answer 13

inflow of cash into business

Question 14

cost

Answer 14

outflows of cach in a business

Question 15

statment of profit or loss involves calculating

Answer 15

sales revenue
cost of goods sold
gross profit
expenses
net profit before interest and tax
tax
netprofit before interest
interest
net profit after interest and tax
dividents
retained profit

Question 16

gross profit=

Answer 16

slaes revenue - COGS

Question 17

COGS=

Answer 17

open stock +purchases - closing stock

Question 18

Net profit=

Answer 18

gross profit - expenses

Question 19

net assets

Answer 19

total assets - total liabilities

Question 20

A balance sheet

Answer 20

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

Question 21

Book value

Answer 21

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

Question 22

Cost of goods sold (COGS)

Answer 22

Cost of goods sold (COGS), also known as cost of sales (COS) refers to the direct costs of producing or purchasing stock that has been sold to customers.

Question 23

Creditors

Answer 23

Creditors are suppliers who allow a business to purchase goods and/or services on trade credit.

Question 24

A current asset

Answer 24

A current asset refers to cash or any other liquid asset that is likely to be turned into cash within 12 months of the balance sheet date. Examples include cash, debtors and stocks.

Question 25

Current liabilities

Answer 25

Current liabilities are debts that must be settled within one year of the balance sheet date. Examples include bank overdrafts, trade creditors and other short-term loans.

Question 26

Expenses

Answer 26

Expenses are the indirect or fixed costs of production, such as administration charges, management salaries, insurance premiums and rent.

Question 27

Final accounts

Answer 27

Final accounts are the published annual financial statements that all limited liability companies are legally obliged to report, namely the balance sheet and the P&L account.

Question 28

Goodwill

Answer 28

Goodwill is an intangible asset which exists when the value of a firm exceeds its book value (the value of the firm’s net assets).

Question 29

Gross profit

Answer 29

Gross profit is the difference between the sales revenue of a business and its direct costs incurred in making or purchasing the products that have been sold to its customers.

Question 30

Intangible assets

Answer 30

Intangible assets are noncurrent assets that do not exist in a physical form but are of monetary value, such as goodwill, copyrights, brand names and registered trademarks.

Question 31

Net assets

Answer 31

Net assets show the value of a business to its owners by calculating the value of all its assets minus its liabilities. This figure must match the equity of the business in the balance sheet.

Question 32

Noncurrent assets

Answer 32

Noncurrent assets are items owned by a business, not intended for sale within the next twelve months, but used repeatedly to generate revenue for the organization, such as property, plant and equipment.

Question 33

Noncurrent liabilities

Answer 33

Noncurrent liabilities are the debts owed by a business, which are expected to take longer than a year from the balance sheet date to repay.

Question 34

Profit

Answer 34

Profit is the surplus (if any) that a business earns after all expenses have been paid for from the firm’s gross profit.

Question 35

The profit and loss account

Answer 35

The profit and loss account is a 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.

Question 36

The residual value

Answer 36

The residual value (or scrap value) is an estimate of the value of the noncurrent asset at the end of its useful life.

Question 37

Retained profit

Answer 37

Retained profit is the amount of profit after interest, tax and dividends have been paid. It is then reinvested in the business for its own use.

Question 38

Share capital

Answer 38

Share capital refers to the amount of money raised through the sale of shares. It shows the value raised when the shares were first sold, rather than their current market value.

Question 39

Window dressing

Answer 39

Window dressing refers to the legal act of creative accounting by manipulating financial data to make the results appear more appealing.