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 1 st April 2011 Sales$3600 Cost of Goods sold1200 Opening stock$1000 Purchases2000 Closing stocks1800 Gross profit2400
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