[Virtual Presenter] For this topic we learned about the need for accounts and records. What are the key points you should now know?. 

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[Audio] The first thing is why do businesses need accounts? If you were running a small business what ways could you use to keep financial records?. 

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Accounts are the day-to-day financial records of the transactions of a business.  All businesses must by law keep records.

Everything about what is earned and spent must be recorded and kept for six years. Records can be on a computer but the paper originals should also be kept.   Records give information needed to manage a business based on its financial history and its present status. Records will also help a business to calculate the right amount of tax due. Accountants are usually employed to record and analyse financial information.

The first thing is why do businesses need accounts? If you were running a small business what ways could you use to keep financial records?

[Audio] Think about who would see business accounts and why they would want to see them.. 

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The accounts show the financial health of a company. So who would be interested?  banks and other lenders to decide on loans and repayments investors and shareholders financial advisors and city analysts to give advice employees and trade unions for pay claims other companies in the same line of business the inland revenue (IRS) and customs and excise (VAT) office.

Accounts for plc’s and large private limited companies are checked by an independent auditor and are available for public inspection. Why?

Think about who would see business accounts and why they would want to see them.

[Audio] How often do formal accounts need to be prepared and what must they include?. 

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Every year a business has to prepare final accounts. The accounting year can start at any convenient date. A tax return is sent to the HMRC (IRS) who collect taxes and in the UK a VAT (sales tax) return is sent if a business is VAT registered. Limited companies send a summary of the final accounts to the Registrar of Companies and to shareholders. The accounts include: the trading account profit and loss account the balance sheet.

How often do formal accounts need to be prepared and what must they include?

[Audio] Do you know what trading accounts are, and what is gross profit!. 

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The trading account shows the GROSS profit for the year. This is the difference between turnover and cost of sales.

Textile manufacturer ‘Originals’ have a turnover of £60000. The cost of making the goods was £15,000. What would be the gross profit?

The owner wants to know what percentage profit he is making on each sale.  This is called the gross profit ratio.  What will the gross profit ratio be for Originals?  Fifty percent or more would be good (45000 divided by 60000 times 100).

Do you know what trading accounts are and what is gross profit!

[Audio] Then there is net profit shown from a profit and loss account. What things are recorded here? Can you think of anything else that could be piled on this poor guys desk?. 

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My gross profit is good so where does all the money go?

The profit and loss account shows how much net profit a business has made, this includes:  expenses overheads and losses.

He must deduct all other expenses from his gross profit to get his net profit.

Then there is net profit shown from a profit and loss account. What things are recorded here? Can you think of anything else that could be piled on this poor guys desk?

[Audio] Do you know how to do some of these basic calculations? If not you could end up looking very silly when you go on dragons den!. 

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Originals have a gross profit of £45000 but annual fixed costs of £36000.  What will be the net profit?

The profitability can also now be measured by the net profit margin or net profit to sales. To work this out take the net profit of £9000 and divide by sales of £60,000 times100. What is their net profit margin?

Does this seem like a good margin to you?

Do you know how to do some of these basic calculations? If not you could end up looking very silly when you go on dragons den!

[Audio] Then you have a balance-sheet, you need to know what will appear on this simple financial record.. 

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The balance sheet is a snapshot of a company’s finances. This is usually at the end of the financial year.

There are two kinds of liabilities: long-term liabilities e.g. loans and mortgages current liabilities e.g. overdrafts, tax and creditors of less than one year (short term loans).

The balance sheet shows two main things: the liabilities (what the business owes or pays)  the assets (what the business owns).

There are two kinds of assets: fixed assets e.g. equipment and fittings current assets e.g. stock, debtors and cash.

Then you have a balance-sheet, you need to know what will appear on this simple financial record.

Accounts & Records

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The first thing is why do businesses need accounts

If you were running a small business what ways could you use to keep financial records?

Do you know what trading accounts are, and what is gross profit!

Then there is net profit shown from a profit and loss account

Can you think of anything else that could be piled on this poor guys desk?

Do you know how to do some of these basic calculations

If not you could end up looking very silly when you go on dragons den!

Accounts & Records

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