Final accounts

Sales revenue → minus COGS → Gross profit → minus Expenses → Net profit → minus interest/tax → Profit for the year.

COGS = Opening stock + Purchases − Closing stock

$120,000 − $48,000 = $72,000

Expenses (overheads) are too high — poor cost control.

A financial statement showing revenue, costs and profit/loss over a specific period (usually one year). Also called an income statement.

GP = Revenue − COGS. NP = GP − Expenses. COGS = Opening stock + Purchases − Closing stock.

Income statement — the IB uses both terms interchangeably.

COGS is too high or selling prices are too low.

$10,000 + $50,000 − $8,000 = $52,000

$72,000 − $52,000 = $20,000

Gross profit = Sales revenue − Cost of goods sold (COGS)

Construction (building the statement) AND interpretation (explaining what figures mean).

Net profit = Gross profit − Expenses (overheads)

Compare with previous years (improving or declining?) and compare with competitors (above or below industry?).

The direct cost of products actually sold during the period — not everything purchased.

Did the business make money or lose money over the period?

Sales revenue — then subtract costs layer by layer to reach net profit at the bottom.

GP only deducts COGS (direct costs). NP also deducts all expenses/overheads (indirect costs).

Raw numbers lack context — comparisons over time and with competitors reveal the real story.

Closing stock is still unsold in the warehouse — it hasn't been used up in sales yet.

EXPLAIN what they mean and SUGGEST what the business should do — this reaches higher mark bands.

Managers (decision-making) and investors (assess profitability). Also banks, employees, suppliers and tax authorities.

Cost of Goods Sold — the direct costs of the products actually sold during the period.

The business made a net loss — total costs exceeded total revenue.

A period of time (e.g. year ending 31 Dec 2025) — unlike the balance sheet which is a snapshot.

Opening stock — it carries forward as the starting inventory.

Rent, wages, marketing, utilities, depreciation — any indirect cost of running the business.

Total costs exceed revenue — the business is losing money and must increase revenue or cut costs.

Gross profit

Clear labels and showing every calculation step earns marks and reduces errors.

Maximum 3 out of 4 marks — you MUST use the exact IB structure for full marks.

Assets (owns) = Liabilities (owes) + Equity (owners' stake). Must always balance.

Items converted to cash within one year — stock (inventory), trade receivables (debtors), cash.

Items owned for more than one year that help generate income. Also called fixed assets.

Long-term debts not due within one year — bank loans, mortgages, debentures.

A snapshot of what a business owns (assets), owes (liabilities) and the owner's equity at a specific point in time. Also called a statement of financial position.

Assets = Liabilities + Owner's equity. This ALWAYS balances.

Land/buildings, machinery/equipment, vehicles, IT systems, intangible assets (goodwill, patents, trademarks).

Non-current assets → Current assets → Total assets → Current liabilities → Non-current liabilities → Total liabilities → Net assets → Equity

The value belonging to owners after all liabilities are paid. Includes share capital and retained profit.

One year — current = within 1 year, non-current = more than 1 year. Applies to assets and liabilities.

Debts the business must pay within one year — trade payables (creditors), overdrafts, tax owed.

Working capital = Current assets − Current liabilities

Speed and accuracy under exam conditions — know the structure by heart.

Share capital (money invested by shareholders) and retained profit (accumulated profits kept in the business).

Business name AND the specific date ('as at [date]') — not a period.

The reduction in value of tangible non-current assets over time due to wear and tear or obsolescence.

Balance sheet = snapshot at ONE point in time (photo). Income statement = period of time (video).

Equity = Assets − Liabilities

Because assets always equal liabilities + equity — everything owned was funded by borrowing or owners' money.

Original cost minus accumulated depreciation — how non-current assets appear on the balance sheet.

The business cannot pay its short-term debts from current assets — a danger sign for liquidity.

A period of time (video) — showing performance over the year.

Net assets must equal total equity. Also: Total assets = Total liabilities + Equity.

Receivables (debtors) = money owed BY customers. Payables (creditors) = money owed TO suppliers.

Net assets = Total assets − Total liabilities. Must equal total equity.

Statement of financial position — the IB uses both terms.

Current assets − Current liabilities

Recheck all figures — Assets MUST equal Liabilities + Equity. An imbalance means there's an error.

Amortisation — the gradual write-off of intangible assets like patents and goodwill.

Is the business profitable? Are costs under control? Are sales growing?

1) State what figures show, 2) Compare (over time/competitors), 3) Note limitations.

The income statement and balance sheet together — the complete set of financial statements.

Historical data (past not future), window dressing (manipulation), non-financial factors ignored (morale, brand).

To decide whether to approve loans — checking if the business can repay and has assets as security.

When businesses present figures in the best possible light — a form of manipulation to look more attractive.

Non-financial factors: staff morale, brand reputation, innovation, customer satisfaction.

What does it own/owe? Can it pay short-term debts? How much debt vs equity?

Position at one moment (photo). Performance over time vs position at a point.

To assess profitability and decide on dividends or further investment.

Different depreciation or stock valuation methods produce different figures — hard to compare like with like.

No — always compare over time (trends) and against competitors for meaningful analysis.

How much debt compared to equity — high gearing = heavy reliance on borrowed money.

One-off events (pandemic, big contract) distort a single year — always look at multiple years.

Job security and evidence for pay rises — is the business stable and profitable?

Managers, shareholders, banks, employees, suppliers, government/tax authorities.

Balance sheet: growing asset base. Income statement: increasing revenue and profit over time.

Income statement = performance over a period. Balance sheet = financial position at one point.

Shows the examiner you understand accounts are useful but not perfect — critical for top marks.

Banks focus on liquidity, shareholders on profit, employees on stability, suppliers on bill payment.