Final Accounts

Definition of Trading, Profit and Loss Account items

1. Turnover/Sales - The amount a business earns by selling goods
2. Cost of Goods Sold - the amount of money a business has spent manufacturing or buying goods
3. Gross Profit - Sales less Cost of Goods Sold
4. Operating Expense - Day to day expenses that a business may incur
5. Net Profit - The final income of the business

Purpose of Trading,Profit and Loss Account

• Helps a business to understand the total income generated
• It can be compared to previous years' accounts
• Useful for deriving the interest on loans and amount of taxation
• Useful to understand the financial solvency of the business

Definition of Balance Sheet items

1. Fixed Assets - Assets whose values do not change over a year
2. Current Assets - Assets whose values change over a year
3. Depreciation - the amounts of fixed assets used by the business in a particular year
4. Current Liabilities - loans payable within a year
5. Long Term Liabilities - liabilities payable after a year
6. Net Asset - Total Assets
7. Drawings - capital withdrawn by the owner for personal use
8. Capital Employed - Amount if investment made in the business adjusted with net profit/loss and long term loans

Purpose of Balance Sheet

• Shows total assets, liabilities and capital
• Shows the asset structure of the business, including fixed and current assets
• Useful to understand the capital structure of the business which will contain investment, profit and long term liabilities