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IBBusinessDPBusiness ManagementHLFlashcards3. Finance & Accounts3.4 Final Accounts

3.4 Final Accounts (DP IB Business Management)

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  • What is the purpose of financial accounts?

    Financial accounts detail the financial performance of a business over a trading period.

  • What does the statement of profit or loss show?

    The statement of profit or loss shows the income and expenditure of a business over a period of time, usually a year, and the amount of profit made.

  • What are the three sections of the statement of profit or loss?

    The three sections of the statement of profit or loss are:

    • The trading account

    • The profit and loss account

    • The appropriation account.

  • What is calculated in the trading account?

    In the trading account, the cost of sales is deducted from sales revenue to calculate the gross profit.

  • Define the term gross profit.

    Gross profit is the difference between sales revenue and cost of sales.

  • What is deducted from gross profit in the profit and loss account section?

    In the profit and loss account section, expenses are deducted to determine profit for the period.

  • What does the appropriations account show?

    The appropriations account shows how profits are distributed for the period.

  • True or False?

    Non-profit organisations replace the word 'profit' with 'surplus' in their financial statements.

    True.

    Non-profit organisations replace the word 'profit' with 'surplus' in their financial statements.

  • What stakeholder group is particularly interested in dividend payments?

    Shareholders are particularly interested in dividend payments, as well as revenues, costs and profits earned and business growth.

  • How is profit before interest and tax calculated?

    Formula.

    Profit space before space interest space and space tax space equals space Gross space profit space minus space Expenses

  • True or False?

    Non-profit organisations must pay corporation tax.

    False.

    Non-profit organisations are usually exempted from the payment of corporation tax.

  • In which section of a company's financial accounts could employees find details of executive pay?

    Employees could find details of executive pay in the notes to the accounts.

  • What does the statement of financial position show?

    The statement of financial position shows the financial structure of a business at a specific point in time, recording the business assets and liabilities and specifying the capital used to fund the business.

  • Give another common name for the statement of financial position.

    Another name for the statement of financial position is the balance sheet.

  • True or False?

    The statement of financial position is sometimes called the balance sheet because assets always equal liabilities.

    False.

    The statement of financial position is sometimes called the balance sheet because net assets equal total equity.

  • What is the formula used to calculate net assets?

    Formula.

    Net space assets space equals space Total space assets space minus space Total space liabilities

  • Define the term current assets.

    Current assets are assets that can be easily converted into cash within one year, such as cash, debtors, and stock.

  • True or False?

    Current liabilities are debts that must be paid within one year.

    True.

    Current liabilities are debts that must be paid within one year.

  • What are non-current assets?

    Non-current assets are long-term assets that are not easily convertible to cash, such as property, plant, and machinery.

  • True or False?

    Shareholders use the statement of financial position to identify the level of profit generated during the financial year.

    False.

    Shareholders use the Statement of Financial Position to identify the asset structure of the business, calculate working capital, and determine the rough value of the business.

  • What are liquid assets?

    Liquid assets are those current assets that are available to meet immediate financial obligations, such as cash.

  • True or False?

    Creditors use the statement of financial position to judge the solvency of the business and determine the level of risk when offering firms trade credit.

    True.

    Creditors use the statement of financial position to judge the solvency of the business and determine the level of risk when offering firms trade credit.

  • What are intangible assets?

    Intangible assets are non-physical items owned by a business, such as patents or goodwill, that cannot be held or touched.

  • What is meant by the term brand value?

    Brand value is the reputation, recognition and features such as brand name, logos and slogans associated with a brand that can be quantified and recorded in the statement of financial position.

  • True or False?

    Intangible assets are not included in the annual report as they cannot be valued.

    False.

    Intangible assets are included in the annual report as they can be quantified and may be a key element of a business's value.

  • What is goodwill?

    The quantifiable value of a company's reputation, customer base and brand, which often represents the premium paid when one business takes over or merges with another business.

  • True or False?

    Managers use the statement of financial position to identify the working capital position of the business.

    True.

    Managers use the statement of financial position to identify the working capital position of the business. This helps determine if there are enough liquid current assets to pay bills.

  • Define the term depreciation.

    Depreciation is the accounting recognition that the value of non-current assets falls over time due to wear and tear.

  • State the two common methods of calculating depreciation?

    The two common methods of calculating depreciation are:

    • Straight line depreciation

    • Units of production depreciation.

  • What is the formula for calculating annual depreciation using the straight line method?

    Formula.

    Annual space depreciation space equals space fraction numerator Historic space cost space minus space Residual space value over denominator Life space expectancy end fraction

  • Define the term residual value.

    Residual value is the scrap value of an asset at the end of its useful life.

  • What is accumulated depreciation?

    Accumulated depreciation is the total amount of depreciation for an asset since its initial purchase.

  • True or False?

    The straight line method reduces the value of an asset by the same amount each year.

    True.

    The straight line method reduces the value of an asset by the same amount each year.

  • True or False?

    The main benefit of straight line depreciation over other methods is that it is simple to calculate.

    True.

    The main benefit of using the straight line depreciation method is that it is simple to calculate.

  • What is the units of production depreciation method?

    The units of production method depreciates an asset based on its usage or production output during an accounting period.

  • What is the formula for calculating depreciation per unit in the units of production method?

    Formula.

    Depreciation space per space unit space equals space fraction numerator Historic space cost space minus space Residual space value over denominator Expected space units space over space the space asset apostrophe straight s space lifetime end fraction

  • True or False?

    If an asset is heavily used in the early years and experiences less use later on, the units of production depreciation method may not accurately represent its true value.

    False.

    If an asset is heavily used in the early years and experiences less use later on, the straight line depreciation method may not accurately represent its true value.

  • True or False?

    The units of production method is commonly used for assets such as machinery or vehicles.

    True.

    The units of production method is commonly used for assets, such as machinery or vehicles, that wear out based on the number of units produced or hours of operation.

  • True or False?

    All assets depreciate over time.

    False.

    Some assets, such as land or property, appreciate over time.

Previous:3.3 Costs & RevenuesNext:3.5 Profitability & Liquidity Ratio Analysis

    1. Topic 1

      1.1 What is a Business?

    2. Topic 2

      1.2 Types of Business Entities

    3. Topic 3

      1.3 Business Objectives

    4. Topic 4

      1.4 Stakeholders

    5. Topic 5

      1.5 Growth & Evolution

    6. Topic 6

      1.6 Multinational Companies (MNCs)

    1. Topic 1

      2.1 Introduction to Human Resource Management

    2. Topic 2

      2.2 Organisational Structure

    3. Topic 3

      2.3 Leadership & Management

    4. Topic 4

      2.4 Motivation & Demotivation

    5. Topic 5

      2.5 Organisational (Corporate) Culture

    6. Topic 6

      2.6 Communication

    7. Topic 7

      2.7 Industrial Relations

    1. Topic 1

      3.1 Introduction to Finance

    2. Topic 2

      3.2 Sources of Finance

    3. Topic 3

      3.3 Costs & Revenues

    4. Topic 4

      3.4 Final Accounts

    5. Topic 5

      3.5 Profitability & Liquidity Ratio Analysis

    6. Topic 6

      3.6 Efficiency Ratio Analysis

    7. Topic 7

      3.7 Cash Flow

    8. Topic 8

      3.8 Investment Appraisal

    9. Topic 9

      3.9 Budgets

    1. Topic 1

      4.1 Introduction to Marketing

    2. Topic 2

      4.2 Marketing Planning

    3. Topic 3

      4.3 Sales Forecasting

    4. Topic 4

      4.4 Market Research

    5. Topic 5

      4.5 The Marketing Mix (7 P's)

    6. Topic 6

      4.6 International Marketing

    1. Topic 1

      5.1 Introduction to Operations Management

    2. Topic 2

      5.2 Operations Methods

    3. Topic 3

      5.3 Lean Production & Quality Management

    4. Topic 4

      5.4 Location

    5. Topic 5

      5.5 Break-Even Analysis

    6. Topic 6

      5.6 Production Planning

    7. Topic 7

      5.7 Crisis Management & Contingency Planning

    8. Topic 8

      5.8 Research & Development (R&D)

    9. Topic 9

      5.9 Management Information Systems

    1. Topic 1

      6.1 The Business Management Toolkit