3.4 | Financial Accounts (1)

Published accounts of an organization.
Made to use by different stakeholders (internal and external)
Why do stakeholders need the financial statements of the business:
- Managers
  - Decision Making
  - Measure the business performance against the organizational targets set
  - Whether they are performing as per the planned performance of the business.
  - Compare their performance with rival businesses.
  - Used to set budget and targets for the future.
  - They can control the business expenditure.
- Employees
  - Job Security
  - If the business is doing good, they can ask for better pay/conditions and talk to their union for better things.
- Shareholders
  - (Calculate) Return on their investments
  - How much dividends they will receive
  - Whether the organization has any potential for the future.
  - Compare business with competitors and figure out whether to invest in that business or not.
  - Value of the business.
  - Profitable/ or not.
- Financiers
  - Whether to lend business and finance.
  - Figure out the risks and costs and see if there is any return.
  - Credit Worthiness of the business. (Measure of Payback in time, defaulting of any payments, etc)
  - Whether the business is able to pay the amount of loan + the interest they took.
- Suppliers
  - Enough money to pay the debts of the raw materials taken.
  - Creditworthiness of the business.
  - Whether to extend the credit terms or request immediate cash back.
- Customers
  - If the business is not doing well, then they want to know if there will be any future supply of the goods they are purchasing.
  - Whether the business offers security and reliability of their services (may or may not go to other competitors)
  - If the business is not doing so well, the promised goods may be delayed on delivery or arrival time.
- Government
  - Taxes
  - Expand and create more employment opportunities.
  - If businesses not doing so well, may cause serious economic problems in the economy.
  - Following the regulations and rules set by the government.
- Competitors
  - Judge performance with other competitors to see what's happening.
  - What practices are rival businesses adopting to improve their financial situation?

Profit and Loss (Income Statement)

Profit: Shows a firm profit after all the production costs have been subtracted from the organization’s revenue.

Statement of Profit and Loss for “Business Name” for the year ended “Date”

Particulars	Formula
Sales Revenue	(Selling Price * Quantity Sold)
Cost of Sales	(Opening stock + purchases - Closing Stock)
Percentage of Sales Rev can also be given.
Gross Profit	(Sales Revenue - Cost of Sales)
Expenses
(List all expenses)	And their value of expense
(List all expenses)	And their value of expense
(List all expenses)	And their value of expense
Profit before interest and tax.	(Gross Profit - Total of All Expenses)
Interest	List Interest Amount
Profit before Tax	(Profit before interest and tax - interest)
Tax	List Tax Amount
Net Profit for the Period	(Profit before tax - tax)
Dividends
(Justified only when an proper reason is given if dividends are not paid)	List Dividend Amount
Retained Profit	(Net Profit - Dividends)
N/A	Interest is a mandatory thing to do in your PNL account and comes before tax.

Balance Sheet / Statement of Financial Position

Particulars	Adjustments, balances, values written in between.	Only total values
Non Current Assets (longer 12 mnths, Long Term, illLiquid)
Land
Building
Machinery (- depreciation)
Total Non Current Assets		Add up all values above.
Current Assets (Up-to 12 mnths, Short Term, Highly Liquid)
Cash
Debtors/Trade Receivables
Stock/Inventory (Closing Stock)
Total of Current Assets		Add up all values above.
Total Assets		(Current Assets + Non Current Assets Totals)
Current Liabilities (Short term debts of the business, within 12 mnths)
Bank Overdraft
Trade Credit/ors
Other short-term loans.
Other Current Liab*
Total Current Liabilities		Total Current Liabilities
Non Current Liabilities (Long term debts of the business, 12mnths or more)
Borrowings/Long Term Bank-loans
Total Non Current Liabilities		Total Non Current Liabilities
Total Liabilities		(Total N-Current and Current Liabilities)
Net Assets		Total Assets - Total Liabilities
Equity (Money that is being invested into the business by the owner)
Share Capital (Money raised from shares, or IPO’s)
Retained Earning/Profit (Profit after paying off all the dividends)
Reserves
Total Equity	(Total Equity = Net Assets should be equal)

Intangible Assets are assets that have a monetary value and are non-physical. They are protected by intellectual property rights.

4 types:

Unit of production method:

Formulas:

Annual Depreciation: