IB Business 3.4 Final Accounts
Total Assets
(Current + Fixed) Assets
Stuff for Current Assets
- Cash - Debtors - Stocks
Net Profit
Gross Profit - Expenses
Different Types of Intangible Assets
- Brand (recognition/value) -> Registered Trademarks - Patents - Copyright - Goodwill (value of organization's image and reputation)
Stuff for Long-term Liabilities
- Debentures - Mortgages - Bank Loans
Stuff for Fixed Assets
- Fixed Assets - Less Depreciation
Stuff for Current Liabilities
- Overdraft - Creditors - Short-Term Loans - Tax - Dividends
Balance Sheet Structure
1. Fixed Assets 2. Current Assets 3. Current Liabilities 4. Working Capital 5. Total Assets Less Current Liabilities 6. Long-term Liabilities 7. Net Assets (Financed by:) 8. Equity
Structure of P&L Account
1. Trading Account 2. P&L Account 3. Appropriation Account
Net Assets
= Fixed Assets + Working Capital - Long-term Liabilities = Total Assets - Total Liabilities = Owner's Equity
Working Capital
= Net Current Assets = Current (Assets - Liabilities)
Financial statements
All companies must provide a set of final accounts consisting of three statements: Profit and loss account showing the trading position of a business at the end of a specified accounting period. Balance Sheet showing the assets and liabilities of a business at a specific point in time. Cash flow statement shows the sources of cash inflows and outflows for a business. (do not confuse this with Cash flow forecast which is future tense, whereas this statement is past tense.)
Gross Profit
Sales Revenue - COGS
Fixed Asset
Asset that is likely to last for more than a year from balance sheet date. (machine)
There are three sections to the Balance Sheet:
Assets - these are classified as current or fixed. Current are stocks(inventories), debtors and cash. Fixed are split into tangible, intangible and investments. Liabilities - these are classified as current or long term. Current those that are due within 12 months, includes trade creditors, short-term borrowings, taxation and dividends Long term liabilities to be paid after 12 months and can include mortgages, debentures and bank loans. The value of a firms Net Assets is Net assets = Current + fixed assets -current liabilities or Net assets = Fixed assets + working capital Capital and reserves - show the internal sources of funds for a business, sometimes called shareholders' funds or owners' equity, there are three sections: Share capital - the amount raised through sale of shares, sometimes showing both ordinary and preference shares and often listed as called-up capital. Retained profits - net profit after interest, tax and dividends are paid. Reserves - proceeds from retained profits in previous trading years, may also include asset revaluations. The value of a firms Net Assets is Net assets = Long term liabilities + Owners' Equity
Current Asset
Cash or any other liquid asset.
Bottom of P&L Account
Dividend + Retained Profit
Bottom of Balance Sheet
Financed By: Share Capital + Retained Profit = Equity
Users of final accounts
Interested parties in final accounts include: Shareholders - for dividends and decisions for buy/sell or hold shares. Employees - job security and pay increments Managers - judge operational efficiency and for target setting. Competitors - to make comparisons of performance. Government - for tax payments Financiers - to approve financial backing and trade credit. Potential investors - to assess financial viability of investment.
Assets
Items of monetary value owned by a business.
Intangible Assets
Non-physical fixed assets that have the ability to earn revenue for a business.
COGS
Opening Stock + Purchases - Closing Stock
There are three sections to the profit and loss account:
The Trading Account shows difference between sales revenue and direct costs of trading - calculates gross profit. The Profit and Loss Account incorporates the trading account and other revenues and expenses - calculates net profit The Appropriation Account shows how net profit is distributed ie. Taxation, dividends and retained profits.
