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3.4 Final Accounts Part 1, Balance Sheets/FP Statement, Part 2: Continues…
3.4 Final Accounts Part 1
Purpose of Accounts to Different Stakeholders
Need provide transparency on financial position to external stakeholders (Leads to success, honesty)
Who's interested Accounting Info:
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Final Accounts must done to satifsy legal requirments = corporation tax!!!
Profitablity, liquidity (direct accessibility to cash), efficiency, gearing (operate in high debt)
Final Accounts & Stakeholders
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Business need final accounts to overview business performance, on:
Evaluation of Final Accounts
Both qualitive & quantative info: taken into consideration
Diff stakeholders view accounts with different perceptions: depend on objectives
Don't give businesses all financial detailed info
Economic Circumstances: taken into consideration (analysis)
Valuable info source for decising-making
Profit & Loss Accounts
Profits linked to organisations performance when measuring: profit important objective for SH
Involves measuring organisation's performance
Record's cost & revenue over time period
determines profit/loss
Profits important to...
As a finance source
Profitable business? easier accesibility to finance
Motivate workforce
Profits = way to measure performance
Profit/Loss Statement
Profit Entity
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Non-profit Entity
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E V A L U A T I O N
Disadvantages
Historical performance shown than what's likely to happen in future
Profit's Quality = recorded
Risks of Window Dressing (legal manipulation to numbers to look more financially attractive !)
Advantages
Profit/Loss shown after all costs deducted
*
3 Main Accounts!!! (Statement of...)
Financial Position (Balance Sheet) /// (Net worth of company at specific date)
Cash-Flow Statement ///// /////
(Cash management over time period)
Profit/Loss (of business over time period)
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<- Balance Sheet / Statement of Financial Position
Accounting statement, records value of business's:
Assets
Lialibilities
Shareholders Equity
Advantages
Capital & Asset Structure, Debts can be analysed
Difference between current assets and lialibilities shows short-term liquidity position
Data for further analysis & comparison using financial ratios
Disadvantages
Asset values based on accounting methods (book value)
Not all assets included on Balance Sheet
Assets
->
item owned/owed
holds monetary value
i.e. cash/buildings
TYPES
Fixed (Non-current)
Kept/Used > 1 year
Tangible
Property/Vehicle
Depreciation
Intangible
Parents/Copyright
Current
turned into cash by next balance sheet date i.e. 1 year
Inventory/Stock
Raw Materials
Cash/Bank Balance
Receiveable accounts
Lialibilities
financial obligation business need to pay future
lenders/suppliers
TYPES
<- Long-term Liabilities
Debts to be paid 12+ months
Mortgages
Long-term Loan
Debentures
Current
Debts must paid in 12 months OR by Balance Sheet date
Suppliers/Creditors
Overdraft
Unpaid Dividends OR Tax
Short-term loans
Equity
represent net value of company
OR
amount return to SH if all assets liquidated & all debts repaid
FORMULA
Total Asset Value + Total Lialibility Value = EQUITY
<- Profit Entity
Share Capital + Retained Profit = EQUITY
<- Non-profit Entity
Retained Profit itself.
.
SH Equity for Limited Liability Companies
Owners Equity for Partnerships & Sole Traders
Shareholder's Equity Resources
Share Capital
Total capital value from SH by issuing shares
First/Original Source
Invested in company by buying shares
.
Retained Profit
Net profit after interest,tax & dividends paid
OR Any retained profits from profits in prev. trading years
Second source
Made over time by operations
Balance Sheets/FP Statement
Part 2: Continues from Intagible Assets...