Final Accounts
Aim:
To produce final accounts for different forms of Business Organisation
This is based on the final accounts question we did lots of in the Junior Cert. It comes
in four types:
1. Sole Trader Final Accounts: similar to Junior Cert but
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Patent Royalties: an income from our Patents being used by others
Bad Debts: an expense when a Debtor goes bankrupt and we don’t get paid,
eg Paddy owes €4,000 goes bankrupt and pays up 30c on the €. This means
we get paid €1,200 have an expense of €2,800and our Debtors go down by
€4,000.
Provision for Bad Debts: we anticipate the Bad Debt before it happens. This
is done by creating a Bad Debt Provision Account which reduces the
Debtors figure. Creating, increasing or reducing it is done in the Profit and
Loss account.
Unpaid expenses like interest will have to be provided for, ie included in the
expenses and current liabilities
Drawings: taken away from Capital and expenses adjusted accordingly
Stocks of Stationery or Heating Oil is a prepaid
2. Limited Company Final Accounts: remember some of the theory
 Limited Liability
 Memorandum of Association
 Articles of Association
 Ordinary Shares
but new terms also:
 Preference Shares (get fixed % dividends each year but no vote)
 Reserves (part of the long term Finance of the Company)
 Capital Reserves, eg Revaluation Reserve (due to appreciation of Fixed
Assets)
 Share Premium (extra money paid for shares- treated as a Balance Sheet
reserve)
 Revenue Reserve (profits retained over a number of years)
The structure of the Final Accounts are basically the same but with some extra
headings:
 Expenses are grouped into three categories: Administration Expenses,
Distribution Expenses and Financial Expenses
 Fixed Assets are divided into three categories: Tangible Fixed Assets (eg
Motor Vehicles), Intangible Fixed Assets (eg Goodwill), Financial Fixed
Assets (eg Investments)
Some of the extra tricky stuff includes:
 Bank Reconciliation
 Suspense Account
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Writing Off Goodwill
Goods in Transit not recorded
Goods on “Sale or Approval” included in Sales
Using stocks and workers for building premises
3 Departmental Accounts: where the firms Trading, Profit and Loss is divided into a
number of departments. So the incomes and expenses have to be allocated to the
different departments using an appropriate basis (like Absorption Costing). The
accounts involve more calculations and columns, though it isn’t as tricky as Company
Final Accounts. You may also be asked to give advice on departments in difficulty.
4. Manufacturing Accounts: used for firms who produce goods, instead of simply
buying and selling. The Manufacturing Account is used to calculate the Cost of
Production as follows:
Materials (Raw Materials Purchases + Opening – Closing Stocks)
Direct Labour
+ Direct Expenses (eg renting a production machine)
= Prime Cost
+ Indirect Expenses (eg repairs, factory insurance)
+ Opening Work in Progress
less Closing Work in Progress
less Sale of Scrap Materials
= Cost of Production
The Cost of Production is compared to the Current Market Value of the goods made
to see if there is a Gross Manufacturing Profit. The Current Market Value is then
used in the Trading Account to replace Purchases. The Gross Manufacturing Profit is
added to Gross Profit from the Trading Account to find Total Gross Profit.
The rest of the Final Accounts are no more complicated than what we have already
seen.