Accounts for limited companies (income statements) · Trading account · Profit and loss account · Appropriation account Balance sheets
Explain the purpose of accounts.
Construct and amend accounts from information given.
Evaluate the importance of final accounts to each stakeholder group. (Students will not be tested on the manufacturing account or double entry.)

3.5 Final Accounts
*2 types of financial statement

1. Balance Sheet(Snapshot- at a certain date)

Purpose:
  • shows assets and liabilities of a business at a certain point in time

Fixed Assets
-land, machinery, building
Current Assets (within 1 year)
-Stock, Debtors, Cash

Current Liabilities
Creditors (people you owe $ to/short-term borrowing/overdraft)
Long-Term Liabilities

Net Assets: total asset- current liabilities

How do we fund our net asset?
*share capital: public and private limited companies/corporations
*loan capital: funding for long-term liabilities (eg. mortgage, bank loan)
*retained profit

capital employed= net asset

Example:
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2. Profit and Loss Account (video)
Purpose:
  • shows the trading position of a business at the end of a specified accounting period
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3. Trading Account
Purpose:
  • top section of the P&L account and shows the gross profit of a business


Gross profit = sales revenue - cost of goods sold
Cost of sales = opening stock + purchases - closing stock


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How to improve gross profit?
  • use cheaper suppliers
  • increase selling price
  • use marketing strategies

4. Appropriation Account

purpose: shows how net profit is distributed
  • taxation
  • dividends
  • retained profit


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How stakeholder uses Final Accounts
Owner
*project planning (decisions), seeking for sources of finance
*determine how the owner's personal drawing affect the business
*determine the amount of dividend distributed is reasonable
*assist in identifying problems in the business

Managers/Directors
*decision making depending on the accounts
*max profits/annual bonuses
*long-term health of business
*Investment opportunities

Employees
*learn about company’s operating conditions
*if company is insecureà may seek for other job opportunities

Government
*tax authorities will want to examine the accounts of businesses, esp. large multinational and public sector industries.

Customers
*if company is reliable (for after-purchase services)
*promote business via word of mouth--> keep loyal of company
*pay computer--> maintenance

Special Interest Groups
*transparency for SIG to examine if any unethical acts of businesses

Investors
*main interest for investor is to gain money through investing (but also look at qualitative factors)à gain money through share price/dividend

Competitor
*make comparison to reflect their own financial performance to motivate
*chance of partnership with companies with similar strength/try to improve

Suppliers
*analyze final accounts to determine if customer is reliable (prevent bad debtor)