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IGCSE Business Notes
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IGCSE Business Notes covering chapter 24 to 26 from "Cambridge IGCSE and O Level Business Studies 5th Edition"
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Chapter 24 – Income statementsAccounts: are the financial records of a firm’s transactions
Accountants: professionally qualified people who have responsibility for keeping accurate accounts and
producing final accounts.
Final accounts: produced are the end of the financial year and give details of the profit/loss made and the
worth of the business.
Computer files store records of sales, purchases, and transactions. Printed/retrieved when required.
Profit = Revenue – Cost of making it (it is the surplus remaining once costs are deducted) Increase by:
- higher revenue
- lower cost
- both
Profit is important because Reward for enterprise
Reward for risk-taking
Source of finance
Income statement: a financial statement which records the income and all costs incurred to earn that
income over a period of time aka profit or loss account.
Trading account: shows how the gross profit is calculated.
- Revenue: income of a business over a period of time made from sales.
- Cost of sales: cost of producing or buying in the goods actually sold during a time period.
Gross profit: Revenue – Cost of sales
(Not the final profit because no allowance for fixed costs/expenses)
- Net profit: calculated by deducting all expenses and overheads from gross profit.
- Depreciation: fall in value of a fixed asset over time, this is included as an annual expense.
- Retained profit: net profit reinvested into the business after deducting tax/payments to owners.
- Corporation tax
- Dividends
- results from previous year for comparison
Chapter 25 – Statement of Financial position
Statement of financial position (balance sheet): shows the value of a business’s assets and liabilities over a
particular time. Shows equity.
Equity: total sum of money invested into the business by the owners. Invested in two ways.
- Share capital: money put in when shareholders bought newly issued shares
- Reserves: Profit/loss reserves are retained profits from current/previous years. This profit is owned
by the shareholders but has not been paid out to them as dividends instead its kept as part of
equity.
Owner’s equity = Total assets – Total liabilities
Assets: items of value owned by the business.
- Current: owned and used within a year e.g., cash, stocks, debtors.
- Non-current: kept for more than a year e.g., land, buildings, equipment. Usually depreciate over
time. Intangible assets: do not exist physically but have a value e.g., copyrights.
Liabilities: debts owed by the business
- Current: short-term depts repaid in less than a year e.g., overdrafts, creditors.
- Non-current: long-term debts which do not have to be repaid within a year e.g., most bank loans.
Working capital = Current assets – Current liabilities
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