Final Accounts

Final Accounts

1. Stakeholders and accounting information

   • Limitations
     • •Limited use: a series of accounts is needed in order to make a comparison, so one year's accounts are of limited value as they don't provide a trend.
     • •They do not measure items that can not be expressed in monetary terms, for example, the talent of the employees working in the buisness.
     • •If you only have the accounts of one business, you cannot compare its results compared to other similar businesses, so an effective assesment of the business performance cannot be made.
     • •Businesses only publish the minimum information required by the law to prevent other companies from using this information in their favor.
     • •Accounts are historic, meaning that they can only say what happened and not what will happen.
     • •By the practice of window dressing, the business presents the accounts in the best possible way, which could mislead the users of accounts.
   • Stakeholders
     • Business managers
       • Measure the performance, provide information for taking decisions, monitor the operation.
     • Workforce
       • Asses whether the job is secure and if a wage increase can be afforded.
     • Banks
       • Decide whether to lend money to the business, asses whether to continue or increase an overdraft facility.
     • Creditors
       • Asses whether the business can repay its debts and if it is a good credit risk.
     • Costumers
       • Determine if they will be assured of future supplies and spare parts.
     • Government and tax authorities
       • Calculate how much tax is due, determine if the business can create more jobs, confirm that the business is staying within the law in accounting regulations.
     • Investors and potential investors
       • Asses the value of the business and whether it is becoming more or less profitable.
     • Local community
       • See if the business can be good for the local economy.

2. Ethic principles

   • Integrity
     • Accountants should act honestly and should not be associated with any information that is believed to contain a materially false or misleading statement.
   • Objectivity
     • Accountants should not allow bias, conflict of interest, or hte influence of other people to override their professional judgement.
   • Professional competence and due care
     • No accountant should undertake professional work which they are not competent to perform.
   • Confidentiality
     • Accountants should not discolse profesisonal information unless they have the specific permission or legal or professional duty to do so.
   • Professional behaviour
     • Accountants should comply eith all relevant legal obligations when dealing with a client's affair and they should never act in a way that will bring their professional body into disrepute.

3. Profit and loss account

   • Records the revenue, costs and profit, or loss, of a business over a given period of time.
   • The three sections
     • 1. The trading account
       • This shows how gross profit (sales revenue - cost of sales) has been made from the trading actvities of the business
       • 2. Profit and loss section
         • This section calculates the operating profit (net profit - overhead or indirect costs), also called profit before tax, and the profit after tax.
         • 3. Appropiation account
           • Shows how the profits after tax are distributed between the owners, in the form of dividends and as retained profit.
   • The use of the profit and loss accont
     • They can be used to measure and compare the performance of the business over time or with other firms.
     • The actual profit data can be compared with the expected profit levels of the business.
     • Bankers and creditors of the business will need the information to help them decide whether to lend money to the business.
     • Potential investors may asses the value of investing in a business from the level of profits being made.
       • Low-quality profit: one-off profit that cannot easily be repeated or sustained.
       • High-quality profit: profit that can be repeated and sustained.

4. Balance sheet

   • An ccounting statement that records the values of a business's asset, liabilities, and shareholder's equity at one point in time.
   • Fixed assets
     • Land, buildings, machinery that are usually expected to be retained and used by the company for more than 12 months.
   • Current assets
     • Imporntant examples include inventories, accounts payable, and cash or bank balance.
   • Current liabilities
     • Debts of the business that usually have to be paid within a year, they include bank overdraft, unpaid dividends and upaid tax.
   • Working capital
     • Current assets - current liabilities. It can also be referred to as net current assets.
   • Shareholders' equity
     • It can be referred to as shareholders' funds. It represents the capital originally paid into the business when the shareholders bought shares (share capital) or the retained profit that the shareholders have agreed should be kept in the business, which are also known as reserves.
   • Non-current (long-term) liabilities
     • Long-term loans owed by the business.

5. Intangible assets

   • Marketing-related
     • Used to market or promote products or services.
   • Costumer-related
     • Result from business relationships with outside parties.
   • Artistic-related
     • Give ownership rights to plays, literary works, musical works, pictures, photographs, and video and audiovisual materia.
   • Contract-related
     • Come from the value of rights arising from contractual arrangements.
   • Technology-related
     • Patents taken out on innovations or technological advances.
   • Goodwill
     • Arises when a business is valued at or sold for more than the balance sheet value of its assets.

6. Depreciation of assets

   • Straigt-line method
     • Anual depreciation charge=
       • _______________________________________________________________
       • Oirignal or historic cost of asset - expected redidual value
       • Expected useful life of asset (years)
   • Reducing balance method

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