Finance for the Non-

Financial Manager

Business accounts

Business accounts 1
 ANY COMPANY

TRIAL BALANCE

Trial balance AS AT 31 DECEMBER 2006

DEBIT CREDIT
£ £

EQUIPMENT - COST 25,000

EQUIPMENT – ACCUM’D DEP’N 5,000
VEHICLES - COST 12,000
VEHICLES – ACCUM’D DEP’N 3,000
STOCK AS AT 1/1/2006 10,000
DEBTORS 15,000
BANK 5,500
CREDITORS 12,500
SALES 150,000
PURCHASES 100,000
SALARIES & WAGES 31,000
VEHICLE RUNNING EXPENSES 18,000
GENERAL EXPENSES 15,000
DRAWINGS 24,000
CAPITAL 74,000

250,000 250,000

1. THE CLOSING STOCK IS £20,000

2. DEPRECIATION CHARGES FOR THE YEAR ARE £2,500
(EQUIPMENT) AND £3,000 (VEHICLES)
Business accounts 2
Stock
 Increased by Purchases
 Decreased by Sales
 Affects Cost of Sales
 Therefore Affects Profit

Business accounts 3
Cost COST OF SALES

of STOCK AVAILABLE
AT START OF PERIOD 10,000
sales STOCK PURCHASED
DURING THE PERIOD 100,000

TOTAL STOCK AVAILABLE

TO SELL 110,000

STOCK SOLD
DURING THE PERIOD 90,000

STOCK UNSOLD 20,000

110,000

THEREFORE:

COST OF SALES =
OPENING STOCK
+ PURCHASES
– CLOSING STOCK
Business accounts 4
The trading account
 Sales
 Less Cost of Sales
 Equals Gross Profit

Business accounts 5
The profit and loss account
 Gross Profit
 Plus Other Income
 Less Expenses/Overheads
 Equals Net Profit

Business accounts 6
Profit
ANY COMPANY

PROFIT AND LOSS ACCOUNT

and FOR THE PERIOD ENDED 31 DECEMBER 2006

loss SALES 150,000

account OPENING STOCK

PURCHASES
10,000
100,000

– sole CLOSING STOCK

110,000
(20,000)

trader COST OF SALES 90,000

GROSS PROFIT 60,000

SALARIES & WAGES 31,000

VEHICLE RUNNING 18,000
DEPRECIATION 5,500
GENERAL EXPENSES 15,000
(69,500)

NET PROFIT/(LOSS) (9,500)

Business accounts 7
The balance sheet
 Fixed Assets
 Order of permanence
 Current Assets
 Current Liabilities
 Working Capital
 Long Term Liabilities
 Net Worth
 Owner’s Capital

Business accounts 8
 ANY COMPANY
BALANCE SHEET

Balance AS AT 31 DECEMBER 2006

£ £ £

sheet FIXED ASSETS

EQUIPMENT 17,500
VEHICLES 6,000
23,500
CURRENT ASSETS
STOCK 20,000
DEBTORS 15,000
35,000
CURRENT LIABILITIES
BANK 5,500
CREDITORS 12,500
(18,000)
NET CURRENT ASSETS 17,000

NET ASSETS 40,500

FINANCED BY: CAPITAL

BROUGHT FORWARD 74,000
PROFIT/(LOSS) FOR THE YEAR (9,500)
LESS DRAWINGS (24,000)
CARRIED FORWARD 40,500

Business accounts 9
Limited company accounts
£

TURNOVER 150,000

COST OF SALES (90,000)

GROSS PROFIT 60,000

DISTRIBUTION COSTS (18,000)

ADMIN EXPENSES (30,500)

OPERATING PROFIT 11,500

FINANCE COSTS (2,000)

PROFIT BEFORE TAX 9,500

TAXATION (2,000)

PROFIT AFTER TAX 7,500

Business accounts 10
Legislation
 Sole traders
 Required to complete tax return
 Self Assessment
 Flexibility of format of accounts
 Limited companies
 statutory format for accounts
 No flexibility of format of accounts
 Possible audit requirement

Business accounts 11