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All 20 Flashcards — Reading and using final accounts
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Question
What are 'final accounts'?
Answer
The income statement and balance sheet together — the complete set of financial statements.
💡 Hint
IS + BS = final accounts
Question
Name two questions the income statement answers
Answer
Is the business profitable? Are costs under control? Are sales growing?
💡 Hint
Profit + cost control
Question
Name three limitations of final accounts
Answer
Historical data (past not future), window dressing (manipulation), non-financial factors ignored (morale, brand).
💡 Hint
Past, dressed up, missing factors
Question
Three steps when asked to 'analyse' accounts?
Answer
1) State what figures show, 2) Compare (over time/competitors), 3) Note limitations.
💡 Hint
State → Compare → Limit
Question
What is window dressing?
Answer
When businesses present figures in the best possible light — a form of manipulation to look more attractive.
💡 Hint
Making figures look better
Question
Name two questions the balance sheet answers
Answer
What does it own/owe? Can it pay short-term debts? How much debt vs equity?
💡 Hint
Owns/owes + liquidity
Question
Why do banks use final accounts?
Answer
To decide whether to approve loans — checking if the business can repay and has assets as security.
💡 Hint
Can it repay?
Question
What do final accounts NOT tell you?
Answer
Non-financial factors: staff morale, brand reputation, innovation, customer satisfaction.
💡 Hint
The human/intangible side
Question
Why do different accounting methods limit comparisons?
Answer
Different depreciation or stock valuation methods produce different figures — hard to compare like with like.
💡 Hint
Different rules = different numbers
Question
Should accounts be analysed in isolation?
Answer
No — always compare over time (trends) and against competitors for meaningful analysis.
💡 Hint
Compare, compare, compare
Question
Income statement = performance (video). Balance sheet = ?
Answer
Position at one moment (photo). Performance over time vs position at a point.
💡 Hint
Performance vs position
Question
Why do shareholders use final accounts?
Answer
To assess profitability and decide on dividends or further investment.
💡 Hint
Profit? Dividends?
Question
What does gearing refer to?
Answer
How much debt compared to equity — high gearing = heavy reliance on borrowed money.
💡 Hint
Debt vs equity ratio
Question
Why might one year's accounts be misleading?
Answer
One-off events (pandemic, big contract) distort a single year — always look at multiple years.
💡 Hint
One year ≠ trend
Question
Name the six main stakeholder groups using final accounts
Answer
Managers, shareholders, banks, employees, suppliers, government/tax authorities.
💡 Hint
M-S-B-E-S-G
Question
What do employees look for in final accounts?
Answer
Job security and evidence for pay rises — is the business stable and profitable?
💡 Hint
Job security + pay
Question
Quick recall: Income statement shows ___, balance sheet shows ___
Answer
Income statement = performance over a period. Balance sheet = financial position at one point.
💡 Hint
Performance vs position
Question
Why mention limitations in evaluation answers?
Answer
Shows the examiner you understand accounts are useful but not perfect — critical for top marks.
💡 Hint
Useful but not perfect
Question
Why do different stakeholders focus on different parts?
Answer
Banks focus on liquidity, shareholders on profit, employees on stability, suppliers on bill payment.
💡 Hint
Different needs = different focus
Question
How can final accounts show business growth?
Answer
Balance sheet: growing asset base. Income statement: increasing revenue and profit over time.
💡 Hint
Growing assets + growing profit
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Final accounts
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