Profit and loss account Balance Sheet Cash Flow Statement

 Final accounts are documents that allow a firm to account for all monies.  They are financial statements that inform stakeholders about the financial profile and performance of the business.  There are two statements that make up final accounts: the profit and loss statement and the balance sheet

Users of final accounts Shareholders Managers Financiers Competitors Employees Potential Investors Government

TASK: -Use pages 390 – 391 to help you fill in your mind map - Complete Question on pg 391

 Stakeholders of Nestle include:  Shareholders (Nestle is listed on the Swiss stock exchange)  Competitors, e.g. Mars and Cadbury.’s  Staff who work for Nestle (a multinational corporation)  Customers of Nestle.’s large range of products  Managers who run the business on a daily basis

 The analysis must come from the stakeholder groups identified in part a) of the question. For example:  Rivals – interested in benchmarking financial data with Nestle which can help with strategic decision making, e.g. changes to their marketing strategies  Managers – use final accounts to judge operational efficiency of Nestle, enabling them to set new targets for strategic planning  Shareholders – interested in assessing the financial health and the profit quality of the business

 This statement covers the year’s trading, its profit and loss  It shows how profit and loss was distributed at the end of the financial year  There are three sections to a Trading, Profit & Loss Account:  the Trading Account  The Profit and Loss Account  The Appropriation Account

 Shows the difference in sales revenue and the direct costs of trading (the value of products sold to customers / the cost to the business of making or purchasing those products)  Basically, it shows the gross profit of a business: Gross profit = sales revenue – COGS

 COGS = Cost of goods sold  COGS aka COS (cost of sales). We work it out using this formula: Cost of sales = opening stock + purchases – closing stock

 If business opens in trading with $1000 worth of stock (= cost value) then receives a delivery which costs $2000  The business stock value now = = $3000  If at the end of day trading the business has stock worth $1800 left then the costs of sales becomes COGS = opening stock + purchases – closing stock COGS = – 1800 = $1200

 If the stocks sell at 3x their costs (3x1200) this generates profits = $3600  Gross profits = 3600 – 1200 = $2400

Trading Account for Company Y for Year Ending 1 st April 20XX Sales$3600 Cost of Goods Sold Opening Stock Purchases Closing stock $1000 $2000 $1800 $1200 Gross Profits$2400

Businesses can improve their Gross Profits by:  Use cheaper suppliers  Increase selling prices  Use marketing strategies Note: Gross Profit is not the profit that a business gets to keep ( it does not cover fixed costs)

TASK: - Complete Question on pg 393 NOTE: Sales turnover includes the value of goods sold even if payment for them hasn’t yet been received.

 Profit & Loss account shows the amount of profit and the amount of loss of a business at the end of a trading period  To figure out operating profit, we use this formula: Operating Profit = Gross profit – Expenses(indirect/fixed costs)  So basically, operating profit is the money you have left over after expenses have been accounted for(direct and indirect)

 Sometimes companies add non-operating income to P & L account  This is added to operating profit, and totaled as profit before interest and tax.  Tax & interest are expenses – but they are shown as a separate entity on the account  COPY Figure page 395.

 Shows how net profit is distributed.  Made up of three parts:  Taxation – tax companies need to pay on profit  Dividends – the share of the profit that must be paid to shareholders  Retained profit – companies can keep this (and reinvest into business)

 The Trading, Profit and Loss and Appropriation Account are combined into one account. It is then simply called the Profit and Loss Account.  Copy Figure pg 396.

TASK: - Complete Question on pg 397