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.