Trading account:
| this account is used to calculate gross profit |
| Profit and loss account: | this account follows on straight after the trading account and is used to calculate net profit |
| Balance sheet: | this shows balances of where a business has got its money from eg owner or bank loan and what it has used that money for, eg to buy fixed and current assets |
| Sales: | this is the amount of money a business brings in from selling goods.
Sales = selling price x quantity sold |
| Cost of sales: | this is the amount of money which a business has paid for the goods which it has sold.
Cost of sales = (opening stock + purchases) - closing stock |
| Opening stock: | this is the value of stock the business has at the start of the financial year. It is the closing stock figure from the previous financial year |
| Purchases: | this is the amount of goods a business has bought during the financial year |
| Closing stock: | this is value of stock the business has at the end of the financial year, ie what it didn't sell. It will become the opening stock figure for the next financial year |
| Gross profit: | this is the profit after the goods sold have been taken off, but before all the other business expenses have been taken away.
Gross profit = sales - cost of sales |
| Expenses: | these are items the business needs to pay for, to keep the business running eg rent |
| Depreciation: | this is the amount by which an asset has decreased in value over time. It is treated as an expense |
| Net profit: | this is the true profit figure when all business expenses have been taken away.
Net profit = gross profit - expenses |
| Asset: | this is something which a business owns, and is of value to the business. Assets can be fixed or current |
| Liability: | this is something which a business owes. Liabilities can be long-term or current |
| Working capital: | this is the money available in a business for the day-to-day running.
Working capital = current assets - current liabilities |
| Assets employed: | this is the figure on the balance sheet that balances with capital employed. It is a total of what a business owns |
| Capital: | this is money invested in the business by the owner. A business owes this money back to the owner |
| Capital employed: | this is the figure on the balance sheet that balances with assets employed. It is a total of what a business owes |
| Debtors: | these are people who owe a business money. They are a current asset |
| Creditors: | these are people to whom a business owes money. They are a current liability |
| Drawings: | the money taken out of a business by the owner for his/her personal use |
