final accounts all companies or corporations ( businesses owned by shareholders) must provide a set...

FINAL ACCOUNTS

All companies or corporations ( businesses owned by shareholders) must provide a set of final accounts consisting on three statements:

Profit and Loss Account Balance Sheet Cash flow statement

FINAL ACCOUNTS

Profit and loss account: This account shows the trading position of a business at the end of a specified accounting period

Balance sheet: This account shows the assets and liabilities of a business at a specific point in time

Cash flow statement: This documents shows the sources of cash inflows of a business and where it has been spent

Trading and profit and loss account Sometimes referred to as an income

statement is a financial statement of a firm’s trading activity over a period of time, usually one year

Trade account represents the top section of the P&L account

Trading and profit and loss account Formula: Gross profit= sales revenue-Cost of

goods sold Cost of sales= Opening stock +

purchases – closing stocks

Trading account for Company Y for year ended 1st April 2011Sales $3600

Cost of Goods sold 1200

Opening stock $1000

Purchases 2000

Closing stocks 1800

Gross profit 2400

Profit and Loss account

The profit and loss account, sometimes referred to as the profit statement. The gross profit, calculated from the Trading Account, is used to deduct all expenses to calculated operating profit

Operating profit= Gross profit -Expenses

Profit and Loss account

Loss and profit account 1                                          

Profit and Loss account

Businesses may also add income from other activities, known as NON OPERATING INCOME.

Those incomes might come from the business colleting payment from renting, interest gained from its deposits from the bank or dividends earned from holding shares in other companies

Profit and Loss account

INTEREST PAYABLE, is a cost as it represents the charge that a business pays to its lenders for loans

INTEREST RECEIVABLE, is a source of revenue from investments and cash deposits at the bank

CORPORATION TAX, is the tax payable on company’s profits

Profit and Loss account

Excel p and l 2 Exercise 3.5.3

Appropriation Account

The third part of the Trading, profit and Loss account is called the Appropriation account

Taxation: This represents the compulsory amount of money imposed by governments o company profits. This amount will be transferred to the balance sheet and shown under current liabilities

Dividends: It shows the share of net profit that is distributed to the owners of a business (shareholders). In the balance sheet is shown under current liabilities

Appropriation Account

Retained profit: This shows how much of the net profit is kept by the business for its own use. This figure is transferred to the capital and reserves section of the firm’s balance sheet

Excel loss and profit 3

Balance Sheet