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Final Accounts (Profit and Loss Account (Income Statement)(AO4) (the…
Final Accounts
Profit and Loss Account (Income Statement)(AO4)
the trading position of a business at the end ofa specified accounting period.
Sales (Trading account)
Cost of Goods Sold
Gross Profit
Less expenses (Profit and loss account)
Net profit before interest and tax
Less interest
Net profit before tax
Less tax
Net profit after interest and tax
Dividends (Appropriation Account)
Retained profit
Balance Sheet (AO4)
shows the assets and liabilities of a business at a particular point in time.
Fixed Assets
Current Assets
Current Liabilities
Net Current Assets (Working Capital)
Total Assets less Current Liabilities
Less Long-term Liabilities
Net Assets
Financed by
Shared Capital
Retained Profit
Equity
Purpose of Final Accounts (AO3)
Shareholders
: The owners of a company are interested to see where their money was spent and the return on their investments.
Employees
: Staff are interested in their organization's financial accounts to assess the likelihood of pay increments and the degree ofjob security.
Managers
: Managers use financial accounts to judge the operational efficiency of their organizations.
Competitors
: Rivals are interested in the final accounts of a business to make comparisons of their financial performance
Government
: The tax authority examines the accounts of businesses, especially large multinationals, to ensure that they pay the correct amount of tax.
Financiers
: Financial lenders such as banks or business angels scrutinize the accounts of a firm before approving any funds.
Suppliers
: Suppliers examine a firm's final accounts to decide the extent to which trade credit should be given.
Potential investors
: Private and institutional investors use final accounts and ratio analysis to assess whether an investment would be financially worthwhile.
Intangible Assets
Brand
Patents
Copyright
Goodwill
Registered Trademark
Principle and Ethics of Final Account (CUEGIS, AO3)
Integrity
Objectivity
Professional Competence and Due Care
Confidentiality
Depreciation (HL)(AO4)
is the fall in the value offixed assets over time
Straight line method
Annual depreciation= (Purchase cost less Residual value) / Lifespan
a method ofdepreciation that reduces the value of a fixed asset by the same value each year
Reducing balance method
Net book value = Historical cost less Accumulated depreciation
depreciates the value of an asset by a predetermined percentage for the duration of its useful life