http://www.bized.co.

uk

Finance and Accounts 1

Copyright 2006 Biz/ed

http://www.bized.co.uk

Finance and Accounts

Copyright 2006 Biz/ed

http://www.bized.co.uk

Key Terms

Copyright 2006 Biz/ed

http://www.bized.co.uk

Costs
Fixed (Indirect/Overheads) are not influenced
by the amount produced but can change in the long run
e.g., insurance costs, administration, rent, some types
of labour costs (salaries), some types of energy costs,
equipment and machinery, buildings, advertising
and promotion costs
Variable (Direct) vary directly with the amount
produced, e.g., raw material costs, some direct labour
costs, some direct energy costs
Semi-fixed where costs not directly attributable to
either of the above, for example, some types of energy
and labour costs

Copyright 2006 Biz/ed

http://www.bized.co.uk

Costs
Total Costs (TC) = Fixed Costs (FC)+
Variable Costs (VC)
Average Costs = TC/Output (Q)
AC (unit costs) show the amount it costs
to produce one unit of output on average

Marginal Costs (MC) the cost of

producing one extra or one fewer units
of production
MC = TCn TCn-1

Copyright 2006 Biz/ed

http://www.bized.co.uk

Revenue
Total Revenue also known as turnover,
sales revenue or sales = Price x Quantity Sold
TR = P x Q
Price may be a variety of different prices
for different products in the portfolio
Quantity could be global sales

Copyright 2006 Biz/ed

http://www.bized.co.uk

Profit
Profit () = TR TC
Normal Profit the minimum amount
required to keep a business
in a particular line of production
Abnormal/Supernormal Profit the
amount over and above the amount
needed to keep a business
in its current line of production

Copyright 2006 Biz/ed

http://www.bized.co.uk

Break Even

Copyright 2006 Biz/ed

http://www.bized.co.uk

Break Even
Occurs where Total Costs = Total
Revenue

Start-up costs fixed costs

Running costs variable costs
Revenue stream depends on price charged
Low price need to sell more to break-even
High price lower level of sales required before
breaking even

Fixed Costs
Break-Even Point = --------------Contribution

Copyright 2006 Biz/ed

http://www.bized.co.uk

Purpose of Accounts

Copyright 2006 Biz/ed

http://www.bized.co.uk

Purpose of Accounts
Provide information for stakeholders
customers, shareholders, suppliers, etc.
Provides the opportunity for the
business to monitor its own activities
Provides transparency to enable
the firm to attract investment
Reduces the chance for fraud
not 100% successful!!

Copyright 2006 Biz/ed

http://www.bized.co.uk

Profit and Loss Account - Flow

Copyright 2006 Biz/ed

http://www.bized.co.uk

Profit and Loss Account

Shows the flow of sales and costs
over a period
Shows the level of profit or loss
made
Shows what has been done
with the profit or loss

Copyright 2006 Biz/ed

http://www.bized.co.uk

Profit and Loss Account

Consolidated Profit & Loss Account for the year ended
Weeks

2003

2002

2001

52

52

52

Currency

million

million

million

Turnover

7688.0

8340.0

9278.0

Cost of sales

-7263.0

-8291.0

-8757.0

Gross Profit

425.0

49.0

521.0

Operating Expenses

-130.0

-137.0

-77.0

Operating Profit

295.0

-88.0

444.0

95.0

166.0

-68.0

Profit before interest and taxation

390.0

78.0

376.0

Net interest receivable (payable)

-255.0

-278.0

-226.0

Profit on ordinary activities before taxation

135.0

-200.0

150.0

Tax on profit on ordinary activities

-50.0

-71.0

-69.0

Profit on ordinary activities after taxation

85.0

-129.0

81.0

Equity minority interests

-13.0

-13.0

-14.0

Profit for the financial period

72.0

-142.0

67.0

Other costs/income

Dividends
Retained profit

0.0
72.0

-193.0
-142.0

-126.0

Dividend

Final
section
called
Profit
Turnover
Operating
Cost
Subtract
of
and
Sales
other
Loss

or
Gross
Operating
Subtract
Profit
Subtract
tax
appropriation
the
share
of=
Account
the
Net

costs
the
revenue
Profit
and
variable
for
=
Expenses
interest
turnover

due
to
get
account

shows
the
profit
British
earned
Gross
costs,
expenses
profit
how
Airways
over

cost
the
payments/recei
fixed
ofthe
sales
costs
where
profit
on
returned
to
plc
the
operating
much
incurred
year
it
cost
to
get
profit/loss
is
going
pts
to get costs
ordinary
shareholders
the
profit
firm
before
profit
onto
activities
produce
tax
what
ordinary
Retained
after tax
it
has sold

activities
Profit
the
not
to be
before
tax
amount
kept
confused
with
back for future
sales
revenue!
investment,
etc.
Source: http://www.bized.ac.uk/cgibin/ratios/ratiodata.pl

Copyright 2006 Biz/ed

http://www.bized.co.uk

Balance Sheet - Snapshot

Copyright 2006 Biz/ed

http://www.bized.co.uk

Balance Sheet
A snapshot of the firms position
at a point in time
Shows what a company owns (assets)
and what it owes (liabilities)
Balance Sheet shows what assets a
company has (use of funds) and where
the money came from to acquire those
assets (source of funds)

Copyright 2006 Biz/ed

http://www.bized.co.uk

Balance Sheet Part 1

Consolidated Balance Sheet for the year ended
Weeks
Currency

2003

2002

2001

52

52

52

million

million

million

164.0

105.0

60.0

9487.0

10509.0

10662.0

524.0

489.0

426.0

10175.0

11103.0

11148.0

87.0

109.0

170.0

986.0

1231.0

1444.0

1430.0

1155.0

865.0

222.0

64.0

71.0

2725.0

2559.0

2550.0

Fixed assets
Intangible Assets
Tangible Assets
Investments
Total Fixed Assets
Current assets
Stock
Debtors due within one year
Short-term investments
Cash at bank and in hand
Total Current Assets

Current
Assets:
Fixedassets
Fixed
Assets
can

assets
that
used
assets
be
tangible
notare
used

up during
up
i.e.
in
physical
production
production and
or
items
lasting
or likely
longer
which
are
to
than
intangible
oneinyear
i.e.

yield cash
the
coming
year for
equipment,
brand
name,
example,
stock will
buildings,
goodwill.
be sold and debtors
machinery,
etc.
owing the business
money will pay up!

Copyright 2006 Biz/ed

http://www.bized.co.uk

Balance Sheet Part 2

Creditors: Amounts falling due within one year

-2904.0

-3201.0

-3308.0

Net Current Assets (liabilities)

-179.0

-642.0

-758.0

Total assets less current liabilities

9996.0

10461.0

10390.0

Creditors: Amounts falling due after more than one year

-6553.0

-7097.0

-6901.0

Provisions for liabilities and charges

-1169.0

-1157.0

-1164.0

Net assets

2274.0

2207.0

2325.0

Called-up share capital

271.0

271.0

271.0

Share premium

788.0

788.0

788.0

Other reserves

270.0

270.0

290.0

Profit and loss account

729.0

687.0

772.0

2058.0

2016.0

2121.0

216.0

191.0

204.0

2274.0

2207.0

2325.0

Capital and reserves

Equit shareholders' funds

Minority interests
Total capital employed

Subtracted
The
funds
to
It
can
come
And
The
total
to
thoseus
acquire
these
from
the
This
leaves
from
share
who
capital
are
longer
assets
must
have
assets
are
the
with
Net
capital
and
come
from
term
employed
creditors
must
money
the
Assets
somewhere
the
from
company
be
loans,
theretained
same
as
next
section
tells
profit
(profit
mortgage
the
sum
of
on
the
owes
to
us
where
it
came
and
loss etc
property
net
assets
from.
creditors

account)
hence
the for
term
suppliers
balance
example sheet!

Copyright 2006 Biz/ed

http://www.bized.co.uk

Balance Sheet
A guide to the structure of the assets
of a company
A guide to the level of gearing
the ratio of loan to share capital
Gives a guide as to the degree of working
capital the amount
the company has to be able to pay
its everyday debts (current assets current
liabilities)
Shows the total value of a firm
at that moment in time

Copyright 2006 Biz/ed