3.4- Final Accounts

• What are final accounts?

  Published, annual financial statements that all limited liability companies are legally obliged to report, including a balance sheet and an income statement
• What is an income statement?

  It includes the businesses trading, profit and loss and appropriation
• What is a balance sheet?


  It reports the value of assets and liabilities of a business at a time
• Who uses final accounts?


  Stakeholders, accountants, employees, competitors, the government and potential investors
• Who creates the final accounts?


  Accountants- the accounts must be audited by chartered accountants
• What is liquidity?


  Ability of an object to turn into cash without losing value
• What are assets and liabilities?


  Assets are what the company owns, liabilities are what the company owes
• What is the difference between fixed and current assets?


  Fixed are long-term (over 1 year) and current are short-term (below 1 year)
• What are debtors?


  Money owed to the business
• What are creditors?


  Money owed by the business
• What is equity?


  Retained profits
• What is included in the trading section of an income statement?


  Sales revenue, cost of sales and gross profit
• What is included in the profit and loss section of an income statement?


  Expenses, operating profit, interest, tax and net profit
• What is included in the appropriation section of an income statement?


  Dividends and retained profit
• What is depreciation?


  A fall in the value of fixed assets over time due to wear and tear or obsolesce (new products cause demand to drop)
• What is the straight line method of calculating depreciation?


  Equal depreciation expense each year, using life expectancy of asset, scrap value and historic cost
• What is the scrap and historic value of an asset?


  Scrap value is the price at the end of its useful life and historic value is the purchase price
• What is the units of production method of calculating depreciation?


  Allocates an equal amount of depreciation to each unit of output produced by the asset