Importance of financial

results
What are accounts and why are they
important.
 Financial records of a business are called
accounts.
 Accountants are responsible for keeping them up
to date and accurate.
 Atthe end of the Financial year, they will
produce the FINAL ACCOUNTS
Why is profit
important in a business
Why is profit important?
 Profit=TR-TC(cost of making the product)
 WHY IS IT IMPORTANT?
 1. REWARD FOR THE ENTREPRENEUR- successful entrepreneurs have
many qualities and profits gives them the reward for these.
 2. Reward for risk taking-entrepreneurs take a lot of risks for starting
a business and profits gives the a motivation and incentive to
continue investing in the business.
 3. sources of finance-it used a sources of business finance and mainly
for expanding the business.
 4. indicator of success-it gives signals to other new entrepreneurs
that a given business is profitable.
FINACIAL STATEMENTS
 Financial statements are written records that convey the business activities and the
financial performance of a company.

TYPES OF FINANCIAL STATEMENTS

 Cash Flow Statements
 These answer the important managerial question “do I have enough cash
to run my business”
 Income Statements
 This is the financial sheet that tells you if your company is profitable or
not.
 Balance Sheets
 How much debt do I have? How large are my assets? This sheet tells you
the answer to these questions.
Importance of financial statements
 Financial statement analysis allows us to assess the
present financial condition of a firm.
 Financial statements are used by both insiders (such
as managers, board of directors) and outsiders (such
as suppliers, creditors) to monitor and control the
firm’s operations.
 Used for Financial forecasting and planning.
 Helps in filing financial statements with regulators,
stock exchanges and filing of tax returns
INCOME STATEMENT
Also called profit and loss account.
They help managers, business owners and
other account users to know whether the
business has made a profit or loss over a
period of time.
Gross profit
 Gross profit=sales revenue –cost of goods
sold( cost of producing or buying the goods
actually sold.
 Example
 Ifa business bought the goods worth $270,000 and
sold them for $450000, what is the gross profit?
TRADING ACCOUNT
This is a section of income statement
that shows the gross profit made
during the trading period.
 https://www.youtube.com/watch?v=2RupCSFcY7w
Net Profit
 Profitafter deducting all expenses and
overheads of the business from the gross
profits.
 Netprofit will also include any non-trading
income, such as the rent from an apartment
above the shop.
Aruzhan’s profit and loss account for the year ending 31/June/2018

Gross profit $32000

Add Non-trading income $5000

$37000

Less expenses(fixed and variable costs)

Wages and salaries 12000

Electricity 6000

Rent 3000

Depreciation 5000

Advertising 5000

$31000

NET PROFIT 6000

Retained profits

 Profits left or reinvested back into the business after all

payments has been made/deducted. Examples of
payments
 1. corporation tax
 2. dividends-money paid to shareholders of a company
Aruzhan’s profit and loss account for the year ending 31/June/2017

Sales $1250

Less cost of sales $900

GROSS PROFIT $350

Less Expenses $155

NET PROFIT $195

less Corporation tax $35

Profit after Tax 160

Less Dividends $120

Retained Profit for the year $40

activity
Calculate retained profits of Aruzhan for the year ending 31/June/2017

($000)
Sales Revenue 280
Tax paid 40
Operating expenses 30
Cost of sales 100
Interest paid 15
dividends 25
Balance sheets
 It shows the value or net worth of a business.

 Itshow all the assets and the liabilities of a

business at a given period of time.
Balance sheets
 Assets- those items of value that are owned by the business.
Example: land buildings, equipment and vehicle. All these are non
current assets or fixed assets because they can be kept for more
than one year in the business.
Cash, inventories(stock) and debtors( those who owe the business)
are held for short period of time and are called current assets.

Liabilities: debts owed by the business

Example:
Non current liabilities: long term loan
Current liabilities: bank overdraft, creditors/suppliers
 Balance sheets shows the wealth of the business.
 Total Assets-Total liabilities=Owners’ Equity/Capital
SAMPLE OF BALANCE SHEET
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