SHORT NOTES

ACCOUNTING FOR BUSINESS

Final accounts
These are accounts prepared at the end of the year to show whether the
business made profit or loss how much the business is worth.
Users of Final Accounts

i)

Managers
These are senior employees appointed to run the business on
daily basis.
They need final accounts in order to manage the business
efficiently and effectively. They also need the information so as
to be able to make the right decisions for the business.
ii)

Shareholders/owners
They own the business and therefore need the accounts to find
out if management is taking care of the business effectively and
efficiently by using the business resources to generate further
wealth.

iii)

Providers of finance
They include the banks and non bank financial institutions.
They need final accounts to assess the firms ability to pay back
loans as well as interest on loans.

iv)

Employees
These are the workers of the company.
They need Information to assess how stable the firm is in terms
of the firms ability to provide remuneration, retirement benefits
and employment opportunities.

v)

Suppliers
These are persons/institutions who supply goods to the

business
They need information to know if the firm will be able to pay for
the goods supplied on credit
vi) Tax authorities
They will need the financial statements so at to ascertain the
appropriate amount the business will have to pay as tax.

What
i.
ii.
iii.

Final Accounts Contain

Trading Account
Profit and Loss Account
Appropriation Account

Trading Account
This account is prepared to show if the business has made Gross profit or
loss. Gross profit is made when sales revenue is greater than cost of goods
sold.
Gross profit = Sales -Cost of goods sold. Cost of goods sold is the cost of
producing or buying the goods actually sold.
Figo Enterprise during the year 2008 bought goods worth $4968 and sold
them for $7842. Stock at 1 st January 2008 was $180 while stock at end of the
year 31st December 2008 was $50. You are to prepare trading account for the
year ending 31st December 2008 to show the gross profit of Figo Enterprise.
[Answer: Gross profit is $2744]
NB: Gross profit is not the final profit of the business. This is because gross
profit does not make allowance for business expenses or overhead costs.
Profit and Loss Account
This is the account that is prepared to show the net profit or loss of a
business. Net profit is made when gross profit is greater than expenses or
overhead costs.
Net profit = Gross Profit Expenses.
Figo Enterprise made a gross profit of $2744 for the year ending 31 st
December 2008. During that same period, the business made the following
expenses which have not been considered; wages and salaries $600,
electricity $240, rent $120, selling and advertisement $80. Draw a profit and
loss account for the year ending 31st December 2008.
Figo Enterprise
Profit & Loss A/C for the year ending 31st December 2008
$
Gross profit

$
2744

Less expenses:
Wages and salaries
Electricity

600
240
2

Rent
Selling and Advertisement
Net profit

120
80

1040
1704