FINAL ACCOUNTS

FINAL ACCOUNTS There are a number of stages in putting together an accounting system Preparing and storing original documents – these are the invoices and statements sent and received between buyer and sellers Transfer this information onto a computerised accounting system 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 BLOOM TRADING ACCOUNT FOR YEAR ENDING Sales 3000 Less Cost of Sales Stock at start 1000 Add purchases 2150 3150 Less stock at end 1950 Cost of sales 1200 GROSS PROFIT 1800

Trading Account Task Complete the following trading account for S Jones for May in your jotter: Sales 5600 Sales returns 45 Opening stock 400 Purchases 1890 Purchase returns 36 Closing 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 BLOOM PROFIT 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 ASSETS Premises 20,000 Computer equipment 2,000 22,000 CURRENT ASSETS Stock 1,950 Debtors 3,551 Cash 3,400 8,901 CURRENT LIABILITIES Creditors 1,586 WORKING CAPITAL 7,315 NET ASSETS 29,315 FINANCED BY Capital at start 27,940 Add 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)