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Glossary: Final accounts

Glossary of key terms: Unit 3.4 Final accounts (some HL Only)

HL Only key terms are shown in italics.

Assets

The possessions owned by a business, which have a monetary value, e.g. buildings, land, machinery, equipment, inventories and cash.

Balance sheet

Part of a firm’s final accounts that shows the value of a firm’s assets, liabilities and the owners’ investment (or equity) in the business, at a particular point in time.

Copyrights

These intangible fixed assets give the registered owner the legal rights to creative pieces of work, such as the works of authors, musicians, conductors, playwrights (scriptwriters) and directors.

Creditors

Suppliers that allow a business to purchase goods and/or services on trade credit.

Current assets

Short-term assets belonging to an organization which will last in the business for up to 12 months, e.g. cash, debtors and stock (inventory).

Debtors

A type of current asset, referring to individual or business customers that owe money to the organization as they have bought goods or services on trade credit, i.e. they need to pay within 30 and 60 days.

Declining balance depreciation

A method using a pre-determined fixed percentage to calculate the fall in value of a fixed asset over its useful life.

Depreciation

The fall in the value of a fixed asset over time, mainly due to wear and tear (usage) and obsolescence.

Final accounts

These are the published accounts of an organization, made available to and used by different stakeholders, e.g. managers, employees, shareholders, sponsors, financiers and investors.

Finished goods

These are the final products of a business, ready to be sold to customers.

Fixed assets

The long-term assets (possessions) of an organization that have a monetary value and are used repeatedly but are not intended for resale within the next twelve months, e.g. property and equipment.

Goodwill

The reputation and established networks (know-how) of an organization, which adds to a firm’s monetary value.

Intangible assets

Non-physical fixed assets that are valuable to a firm’s survival and success, such as brand value,  copyrights, trademarks and patents.

Intellectual property rights

Abbreviated as IPRs, these are a firm's fixed, intangible assets with a monetary value, comprised of goodwill, patents, copyrights and trademarks.

Liabilities

The debts of a business, i.e. the money owed to others, e.g. money owed to financiers, trade creditors, and the government (for tax).

Long-term liability

A debt owed by a business which will take longer than a year (from the balance sheet date) to repay.

Net assets

Refers to the overall value of an organization’s assets after all its liabilities are deducted. It is calculated by the formula: total assets less current liabilities less long-term liabilities.

Overdrafts

This financial service allows customers to temporarily take out more money than is available in their bank account.

Patents

The official rights given to a business to exploit an invention or process for commercial purposes.

Residual value

Also known as the scrap value, this is the value of a fixed asset at the end of its useful life, before it is replaced.

Retained profit

The value of a firm’s earnings after all costs are paid (including interest and tax) and shareholders have been compensated (dividends).

Share capital

The value of equity in a business that is funded by its shareholders, either through an initial public offering (IPO) or via a share issue.

Stocks

Also known as inventories, these are the goods that a business has available for sale, per time period.

Straight line depreciation

A method of depreciation that spreads the depreciation of a fixed asset evenly over its useful life, i.e. the value of the asset falls by the same amount each year.

Trade creditors

Suppliers may give trade credit, which needs to be repaid at a future date (typically 30 to 60 days).

Trademarks

A form of intellectual property, the value of which gives the listed owner the legal and exclusive commercial use of the registered brands, logos, and/or slogans (corporate catchphrases).

Work-in-progress

Also referred to as semi-finished goods, these are parts and components used in the production process.

Working capital

The money available for the day-to-day running of a business. It is calculated by subtracting current liabilities from current assets.

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