Business finance : theory and practice

The financial statements
broadly in line with that which most UK businesses use for the annual published
financial statements. Individual businesses can and do use different layouts for financial
statements.
Jackson plc’s income statement for the year 2008 shows that the business generated
wealth (earned revenues) of £837 million by making sales to external customers. This
led directly to the wealth being reduced (expenses incurred) in respect of meeting the
cost of making those sales revenues; also in distributing the goods sold and meeting
the administrative costs of running the business. This left the business with a net
increase in wealth, as a result of operating for the year, of £135 million. The interest
that the business was under a contractual obligation to pay accounted for a further
£30 million.
£27 million will be paid to the Revenue and Customs for corporation tax, leaving an
(after-tax) profit for the year of £78 million.
Jackson plc
Income statement for the year ended 31 December 2008
£ million £ million £ million
Revenue 837
Cost of sales (478)
Gross profit 359
Distribution costs
Salaries and wages (37)
Motor expenses (43)
Depreciation of motor vehicles (16)
Sundry distribution expenses (15) (111)
Administrative expenses
Salaries and wages (58)
Motor expenses (22)
Depreciation of motor vehicles (19)
Sundry administrative expenses (14) (113) (224)
Operating profit 135
Interest payable (30)
Profit before taxation 105
Taxation (27)
Profit for the year 78
The cost of sales figure includes depreciation of £28 million and raw materials inventories usage of £253 million.
During the year raw materials inventories purchases totalled £255 million.
The balance sheet
‘
The balance sheet is a statement of the manner in which the business holds its wealth,
how much of its wealth it has in each category, how much of the wealth that the business
controls is committed to outsiders, and the net wealth of the business. This net
wealth belongs to the shareholders. Unlike the income statement, which summarises
the effects of various trading events on the wealth of the business over a period, the
balance sheet shows the position at a specified point in time.
The balance sheet of Jackson plc, at the end of the year covered by the income statement
that we have just considered, is as follows:
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