FINAL ACCOUNTS

FINAL ACCOUNTS

There are a number of stages in putting together an accounting system

1.Preparing and storing original documents – these are the invoices and statements sent and received between buyer and sellers2.Transfer this information onto a computerised accounting system3.Prepare financial statements

REASONS FOR FINAL ACCOUNTS

• Businesses prepare final accounts to show a summary of all trading activities during the year.

• Individual records would be too detailed for most people to understand

• Final accounts often have to be available for shareholders, potential buyers, creditors, lenders, HMRC

TRADING ACCOUNT

This shows the gross profit for the business and is the result of buying at one price and selling at a higher price.

D BLOOMTRADING ACCOUNT FOR YEAR ENDING

Sales 3000Less Cost of SalesStock at start 1000Add purchases 2150

3150Less stock at end 1950

Cost of sales 1200GROSS PROFIT 1800

Trading Account Task

• Complete the following trading account for S Jones for May in your jotter:

Sales 5600Sales returns 45Opening stock 400Purchases 1890Purchase returns 36Closing stock 250

Financial Terminology – The Trading Account

• Sales

• Sales returns

• Purchases

• Purchase returns

• Cost of sales

• Opening stock

• Closing stock

Financial Terminology – The Trading Account

• Sales – the amount in £s a business sell over the financial year sometimes called turnover.

• Sales returns – goods the business has sold that have been returned by customers because they are unsuitable. They must be deducted from the sales figure in the trading account.

• Purchases – the amount of stock in £s the business buys from suppliers throughout the financial year.

• Purchase returns – the amount of stock in £s the business has bought and returns to the supplier because it is unsuitable. This figure must be deducted from purchases.

• Opening stock – the stock in £s the business has at the start of the financial year. This figure would be found by doing a physical stocktake.

• Closing stock - the stock in £s the business has at the end of the financial year

• Cost of Sales – the cost of the stock that was sold; the figure is deducted from the Sales figure

PROFIT AND LOSS ACCOUNT

• This account calculates the NET PROFIT

• This is the amount left after all expenses have been met, eg phone, rent, etc.

• There may also be some income and this is added to the Gross profit figure and then the expenses are deducted.

D BLOOMPROFIT AND LOSS ACCOUNT

FOR YEAR ENDING

Gross Profit 1800

Less expenses

Telephone 100

Rent 150

Wages 175

Electricity 200

625

NET PROFIT 1375

Profit and Loss Account Task

• Complete the following Profit and Loss Account for S Jones in your jotter using the following expenses:

Gross Profit £3,551

Wages £900

Light and heat £120

Rent £125

Telephone £78

Finance Terminology – Trading Profit and Loss Account….

Describe the following terms:

• Gross Profit –

• Trading Account –

• Expenses –

• Net Profit –

• Profit and loss account –

Finance Terminology – Trading Profit and Loss Account….

Describe the following terms:

• Gross Profit – the profit made from buying and selling throughout the financial year

• Trading Account – this account ends with the gross profit. It deducts the cost of sales for the total sales figure

• Expenses – wages, telephone rent etc – these are deducted from the gross profit to arrive at the net profit.

• Net Profit – the final profit after all expenses are taken into account. This profit is used to declare the amount of tax due to the inland revenue.

• Profit and loss account – it ends up at the net profit and shows all the expenses that are deducted from gross profit.

The Balance Sheet

This shows the assets and liabilities of an organisation at a particular point in time.

Assets are items or sums of money owned by the business

Liabilities are amounts owed by the business.

D BLOOM - BALANCE SHEET as at 31 December 2005

FIXED ASSETSPremises 20,000Computer equipment 2,000

22,000CURRENT ASSETSStock 1,950Debtors 3,551Cash 3,400

8,901CURRENT LIABILITIESCreditors 1,586WORKING CAPITAL 7,315NET ASSETS 29,315

FINANCED BY Capital at start 27,940Add Net profit 1,375 29,315

Finance Terminology – The Balance Sheet

• Describe the following financial terms:• Fixed Assets• Intangible Assets• Current Assets• Long term Liabilities• Current Liabilities• Working Capital• Debtors• Creditors

Finance Terminology – The Balance Sheet

• Describe the following financial terms:• Fixed Assets – assets used in the day to day running of the business

which will be kept for more than one year eg premises, motor van• Intangible Assets – assets which you cannot see or touch eg

reputation (goodwill), brand name.• Current Assets – assets that constantly change and can be easily

turned into cash. (stock, debtors and cash)• Long term Liabilities – money the business owes over a long period

of time – greater than one year (mortgage, bank loan)• Current Liabilities – money the business owes in the short term –

within one year (suppliers, overdraft, tax bill)• Working Capital – current assets minus current liabilities. Working

capital in the amount of money a business has available to meet it’s short term debts.

• Debtors – individuals and businesses that owe the business money. Debtors are a current asset.

• Creditors – individuals and businesses that the business owes money to. Creditors can be current liabilities (suppliers or overdraft) or long term liabilities (bank loan)