BUSF_A01.qxd

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 finan-

cial 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

5.5 Taxation

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 sheetis 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 busi-

ness 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 state-

ment that we have just considered, is as follows:

‘