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8/7/2019 final-accounts 001
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Final Accounts
TARIQ HASSAN
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Lesson objectives
By the end of the lesson, students should be
able to: -
Understand and construct a Trading Profit & LossAccount
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Introduction
All companies or corporations must provide a
set of final accounts consisting of the
following: - Profit and Loss Account
Balance Sheet
Cash Flow Statement
Which stakeholders do you think would beinterested in a company¶s final accounts?
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Profit & Loss Account (P&L Account)
This is a financial statement of a firms trading
over a period of time (usually a year).
There are three sections to a P&L Account. Trading Profit and Loss Account
Profit and Loss Account
Appropriation Account
Also known as Income Statements
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Trading, Profit and LossAccount
This account represents the top of the P&L
account. It shows the difference in sales
revenue and the direct costs of trading. Itshows the gross profit of a business.
Gross Profit = Sales Revenue ± Cost of Goods Sold
Cost of sales = opening stock + purchases ± closing
stock
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Example (figur es in $)
Trading Account for Company Y for Year Ended 31st December 2008
Sales 3600
Cost of Goods Sold
Opening Stock 1000
Purchases 2000
Closing Stock 1800
1200
Gross Profit 2400
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Improving Gross Profit
Use cheaper suppliers
Increase the selling price
Use marketing strategies
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Profit & Loss Account
This account shows the operating profit and
net profit of the business.
The gross profit figure is used to deduct allexpenses to calculate the operating profit.
Operating Profit= Gross Profit - Expenses
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Examples of businessexpenses
Administration charges
Utility bills
Insurance Interest on bank loans
Marketing costs
Rent
Management salaries Stationer y costs
Transport costs
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Example- Profit & Loss Account for Florists-
R-Us year ended 31st December 2008
$ $
Sales Revenue 450000
Cost of sales 200000
Gross Profit 250000
Less Expenses
Rent 80000
Utility bills 50000
Other overheads 30000
160000
Operating profit 90000
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How to improve operatingprofit
Reduce rent
Heating and Lighting costs
Reviewing administration costs
The business may also have non-operating income
If the business does not have any non-operating
profit then operating profit is equal to the net profit. Interest payable/ received and Corporation Tax is
shown separately to the other expenses
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Example$
Sales Revenue 450000
Cost of sales (200000)
Gross Profit 250000
Less Expenses (160000)
Operating profit 90000
Plus non operating
income
5000
Profit befor e inter estand tax
95000
Less Inter estpayable
(8000)
Net Profit 87000
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Appropriation Account
This is the third part of the P&L account.
There are three parts to this account Taxation
Dividends Retained Profit
The company has no power over how much tax they pay, however they can decide how the profits are
shared out. The share of profits is decided by the directors and
approved by the AGM.
Dividends are usually paid biannually
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Profit and Loss Account for Florists-R-Us(31st December 2008)
$
Sales Revenue 450000
Trading AccountCost of sales (200000)
Gross Profit 250000
Less expenses (160000)
Profit & Loss Account
Operating profit 90000Plus non operating income 5000
Profit before income and tax 95000
Interest expenses (8000)
Net profit before tax
87000Less taxation (15000)
Appropriation AccountNet profit after interest and tax 72000
Dividends 22000
Retained profit 50000
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Ahmed Educational Books LtdProfit & Loss Account for Ahmed Educational Books Ltd For Year Ended 31 December
2008
Year 2 ($000) Year 1 ($000)
Sales (a) 450
Cost of sales 200 (b)Gross Profit 300 270
Expenses 100 90
Net Profit Before Interest
& Tax
(c) 180
Interest Payable 10 0
Taxation 48 (d)
Net Profit after Interest &
Tax
142 135
Dividends 10 15
Retained Profit 132 (5)