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Summary Business Law and Practice Business Accounts
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Bus ness Accounts - Rev s on NotesTr al balance and account ng statements
ALCIE Summary
accounts:
Assets (A) An asset s someth ng you own
F xed asset (aka non-current assets)
➔ any asset tang ble (e.g bu ld ng) pr ntang ble (e.g trademark) owned by a bus ness that
w ll enable t to make t prof t
➔ must be held by the company for over a year and prov de some long last ng benef t to the
company
➔ tang ble → phys cal asset
➔ ntang ble → does not have phys cal ex stence
Current assets:
➔ ncludes cash and tems owned by the bus ness (or owed to the bus ness) wh ch can
qu ckly be turned nto cash
➔ cont nually flow ng through the bus ness - have a shorter term nature
◆ stock (goods for use or resale) - aka nventory
● debtors - people who own money to the bus ness
● cash - nclud ng cash that the bus ness has n ts bank account(s) and cash
n hand
L ab l t es A l ab l ty s someth ng you owe to someone else
(L) Current l ab l t es - due to be pa d w th n a year e.g bank overdraft & trade cred tors (e.g suppl ers
of raw mater als
Long-term l ab l t es - fa l ng due after one year (aka non-current l ab l t es) e.g term loan
Cap tal (C) dent f able as an nject on of value from the owner or an nvestor rather than money accru ng from
customers or otherw se generated by the bus ness = see t as represent ng the owner of the
bus ness
Income (I) earned n the bus ness
Expenses runn ng the bus ness (e.g heat ng and l ght ng)
(E) - record day-to-day spend ng (aka ‘revenue’ or ‘ ncome’ expend ture)
- do not nclude spend ng on long-term assets (e.g car or a bu ld ng = referred as ‘cap tal
expend ture’
Tr al Balance
● we take all the balances on all of a bus ness’ ledgers/accounts as at the end of an
account ng per od and l st them, show ng deb t balances n one column and cred t
balances n another column, the total of each of the two columns should be the
same
● before the tr al balance can be used to prepare the f nanc al statement, year-end
adjustments w ll need to be made to some of the f gures
, ★ purpose s to ensure that all ncome and expend ture shown on the f nanc al
statement relate only to the relevant account ng per od
example: f a bus ness’ account ng per od matches the calendar year and t pays a year’s rent
n advance on 1 June, only half of th s payment w ll correspond to the current account ng
per od (1 June - 31 Dec); the rema n ng half (1 Jan - 31 May) w ll relate to the subsequent
account ng per od
Prof t and Loss Account
➔ records the ncome of a bus ness throughout an account ng per od m nus expenses
ncurred n that per od, to arr ve at a prof t or loss f gure for the per od = a summary of the
fortunes of a bus ness over a passage of t me
➔ generally only the ncome and expense entr es from the tr al balance are transferred nto
the prof t and loss account
ncome entr es from the tr al balance are put at the TOP of the PLA (e.g sales)
Separate entry labelled Gross Prof t n the TOP part of PLA
- calculated by us ng some entr es that are shown on the tr al balance
- represents all the ncome of the bus ness less the ‘costs of sales’ ( = costs d rectly
attr butable to how the bus ness earns money (e.g the cost of purchas ng stock))
- shows the reader how much money the bus ness had made dur ng the account ng per od
before other expenses are taken nto account
Formula for cost of sales s:
Open ng stock + purchases - clos ng stock = cost of sales
Cost of sales:
- ncludes f gures for open ng stock and clos ng stock
- represents the value of unsold stock held by the bus ness at the start and end of the
account ng per od respect vely
- these two accounts are asset accounts - are except ons to the general rule that PLA shows
only ncome and expense accounts)
All expenses are exclud ng purchases (wh ch have been deducted n the costs of sales calculat on)
are deducted from the Gross prof t
the result ng f gure s the net prof t and th s f gure w ll appear as prof t for the year n the BOTTOM
half of the Balance Sheet
● Brackets demonstrate the negat ve numbers
Balance Sheet
- record the pos t on n respect of asset, l ab l ty and cap tal accounts from the tr al
balance
- DIFFERS from the PLA, as t s a snapshot relevant on a g ven date
- date at the top s the last day of the account ng per od
- conta ns the words as at a spec f ed date
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