FINAL ACCOUNTS BUSINESS MANAGEMENT FOR IB

Business management for the IB diploma.

1. BUSINESS MANAGEMENT
FINAL
ACCOUNTS
JOYCE CHONG QUI DIAZ

2. ●Profit and loss account
●Cost of sales
●Gross profit
●Profit before interest and tax
●Profit before tax
●Profit for period
●Dividends
●Retained profit
KEY TERMS

3. Final accounts are financial statements
compiled by businesses at the end of a
particular accounting period, such as at the
end of a fiscal or trading year.

This record of accounts help to inform
stakeholders about the financial position and
performance of an organization.
PURPOSE OF ACCOUNTS
TO DIFFERENT
STAKEHOLDERS

4. PURPOSE OF ACCOUNTS
A profitable business could
signal to employees that
their jobs are secure.
EMPLOYEESSHAREHOLDERS
They are interested in
knowing how valuable the
business has become
throughout its financial year.
CUSTOMERS
They are interested in
knowing whether there will
be a constant supply of a
firm's products in the future.
MANAGERS
They use the final accounts
to set targets, which they can
use to judge and compare
their performance within a
particular financial year.
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03 04

5. PURPOSE OF ACCOUNTS
They will want to compare
their financial statements
with those of other firms to
see how well they are
performing financially.

COMPETITORS SUPPLIERS
They can use the final
accounts to negotiate better
cash or credit terms with
firms.
FINANCIERS
They check on the
creditworthiness of the
business to establish how
much money they can lend it.
GOVERNMENT
They will check on whether
the business is abiding by the
law regarding accounting
regulations.
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07 08

6. THE LOCAL COMMUNITY
Residents living around a particular
business will want to know its
profitability and expansion potential.

7. THE MAIN
FINAL
ACCOUNTS
01

8. THE PROFIT AND LOSS ACCOUNT
This is also known as the income statement and shows the records of
income and expenditure flows of a business over a given time period.

It therefore establishes whether a business has made a profit or a loss and
how this was distributed at the end of that period.

It is divided into three parts.

9. PROFIT AND LOSS ACCOUNT
The
trading
account
The profit
and loss
account
The
appropriation
account
01 02 03

10. THE TRADING ACCOUNT
●Shows the difference between the sales revenue and the cost to the business of
those sales. It is shown as the top part of the income statement that establishes
the gross profit of the business.


GROSS PROFIT = SALES REVENUE - COST OF SALES

11. THE TRADING ACCOUNT
●Sales revenue is the income earned from selling goods or services over a given
period. Cost of sales or cost of goods sold is the direct cost of producing or
purchasing the goods that were sold during that period.


COST OF SALES = OPENING STOCK + PURCHASES - CLOSING STOCK

12. EXAMPLE
A firm, at the beginning of a trading
period had $500 worth of stock. It then
bought more stock during this period
valued at $800. What is its COGS during
the period?

What would the firm’s gross profit be if it
sold 400 units of a product at $10 each?

13. THE PROFIT AND LOSS ACCOUNT
This is the second part of the income statement that shows the profit before interest
and tax, and profit for period.

To find out profit before interest and tax, expenses are subtracted from the gross profit
shown in the trading account. These expenses compromise indirect costs or overheads
which are not directly related to the units sold.

PROFIT BEFORE INTEREST AND TAX = GROSS PROFIT - EXPENSES

14. THE PROFIT AND LOSS ACCOUNT

PROFIT BEFORE INTEREST AND TAX = GROSS PROFIT - EXPENSES

Profit before tax is calculated by substituting interest payable on loans from the profit
before interest and tax:

PROFIT BEFORE TAX = PROFIT BEFORE INTEREST AND TAX - INTEREST

Then, the profit for period is found by deducting corporation tax from profit before tax:

PROFIT FOR PERIOD = PROFIT BEFORE TAX - CORPORATION TAX

16. THE APPROPRIATION ACCOUNT
This is the final part of the profit and loss account that shows how the company’s profit
for period is distributed. This distribution is in two forms:

-Dividends to shareholders
-Retained profit

RETAINED PROFIT = PROFIT FOR PERIOD - DIVIDENDS

17. EXAMPLE