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3.4 Final Accounts

The document discusses final accounts, which include profit/loss statements and balance sheets. It provides the format and key elements of each, explains why they are needed and how stakeholders use them. It also discusses ways to increase profit and the difference between profit and surplus for different types of organizations.

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Aryan Gandhi
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33 views4 pages

3.4 Final Accounts

The document discusses final accounts, which include profit/loss statements and balance sheets. It provides the format and key elements of each, explains why they are needed and how stakeholders use them. It also discusses ways to increase profit and the difference between profit and surplus for different types of organizations.

Uploaded by

Aryan Gandhi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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3.

4 Final Accounts

What are final accounts?


- Profit/Loss Statement
- Balance Sheet

Why do we need final accounts?


- All businesses need records of finance
- It helps for better control and planning
- It is mostly a legal requirement

Profit & Loss Statement: Format


Statement: Profit/Loss statement for (company) for the year (specific time period)
($m)
Sales Revenue 100
Cost of Sales (bracket should have negative) (20)
Gross Profit 80

Expenses:
- Salaries
- Rent
- Advertising
- Utilities —-------

Profit/surplus before Interest & Tax


Interest
Profit before Tax
Tax —----------
Profit for period

Dividends
Retained Profit —----------

How do stakeholders use the profit/loss account?


Shareholders Employees

- Interested in revenues, growth, and - Interested in profits for potential pay


dividend payment rise and stability
- Identify efficiency and ROI

Managers & Directors Suppliers

- Key performance data can be used - Interested in the success of the


in new strategies, ideas, and work company and helps determine the
rules. trade credit.

Government Local Community

- Whether tax is paid or not - Stability of a business and more


- If government intervention is opportunities
required
Important Note:
1. Profit for profit organisations & surplus for non-profit organisations
2. No dividends for non-profit
3. Surplus for period = Retained Surplus (non-profit)

Difference between Profit & Surplus:

Profit Surplus

- Profit = Profit business - Surplus = Non-profit business


- Profit is distributed - Profit is reinvested.
Dividends
Reinvested

Methods to increase profit & surplus:


1. Increasing Sales revenue
● Increase Selling price
● Sell greater quantities by marketing
2. Reduce cost of sales
● Use cheap suppliers
● Buy in bulk
3. Increase Funding
● Sponsors
● Fundraising

How to improve profit before interest & tax:


- Reduce rent
- Energy efficiency
- Cost-effective suppliers
- Smart marketing
- Seek volunteers (non-profit)

Balance Sheets:
- Snapshots of the value of a company
- They are legally required
- Information: Assets - Liabilities = Equity (Sources of Finance)
Assets Liabilities Equity

Items of monetary value Legal Obligations (pay later) Value of business to owners

Two types: Two types: Considered as:


1. Non-current: + 12 1. Current: -12 months 1. Share capital
months ● Overdrafts, trade, ● Money raised
● Property, building, creditors, short term through shares
equipment, vehicles loans 2. Retained earnings
and machinery 2. Non-current: + 12 m ● Profit per period
2. Current/Fixed: - 12 ● Loans, mortgages, ● Mostly prepared after
● Cash, Stock & debentures, a profit/loss
Debtors borrowing statement.
Balance Sheet Format:

Company Name
Statement of financial position of company name as at time period

Non-Current Assets
Property, Plant & Equipment
Depreciation ()
Total Non-Current Assets
______________

Current Assets
Cash
Debtors
Stock
Total Current Assets
_______________

Total Assets _______________

Current Liabilities
Bank Overdraft
Trade Creditors
Short term loans
Total Current liabilities
______________

Non-current Liabilities:
Borrowing
Loans
Mortgages
Total Non-current liabilities
______________

Total Liabilities: ______________

Net Assets: (Total Assets - Total Liabilities) _______________

Equity
Share Capital
Retained Earnings
Total Equity _______________

Note: Net assets = total equity (compulsory)


Different Types of Intangible Assets:
- These are non-physical and cannot be held
- Businesses have to include these assets in their annual reports to add more value.

Different Non-physical assets

Intellectual Property - Includes patents, trademarks, copyrights which protect


ideas and companies

Brand Value - The reputation of a brand image (logo), slogans

Customer - Long term relationships ensure recurring revenue through


Relationships loyalty

Software & - Programs and softwares provide competitive advantage to


Technology a business

Contracts & - Contracts, licensing and agreements contribute to proper


Agreements cash flow
- Non compete protects interests of the company

Goodwill - Companies reputation

Domain - Domain (online presence) through online platforms drive


customer engagements and online presence.

Licences & Permit - Licences, permits grant exclusive rights or access to


markets and resources.

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