Accounts Demystified, 6th Edition

w i n g at e ’ s a n n u a l r e p o r t

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Of course. Here are a few.

UK term International standard term

Profit and loss account Income statement

Turnover Revenue

Fixed assets Non-current assets

Stocks Inventories

Trade debtors Receivables

Capital and reserves Equity

The P&L and cash flow statement

As far as the P&L and cash flow statement are concerned, we covered

many of the points when looking at SBL. There are a few things I should

mention, however.

Continuing operations

If Wingate had either made an acquisition of another business during the

year or had discontinued one or more parts of its operations during the

year, the P&L would show them broken out separately so you could see the

figures for the continuing operations of the company. This can make a P&L

look more complicated but it is actually giving you useful information.

When all operations were continuing all through the year, a simple state-

ment to that effect is made at the bottom of the P&L, as in Wingate’s case.

What’s the other statement at the bottom of Wingate’s P&L (about recognised gains

and losses)?

I will come back to that later, when we talk about features of accounts

that don’t apply to Wingate.

Extraordinary items

Occasionally, an event will occur that causes a company to earn some

income or incur some expense which it would not expect in the ordinary

course of its business and which it does not expect to recur, i.e. it is a

a c c o u n t s d e m y s t i f i e d

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‘one-off’ event. The income or expense resulting from this event is called

an extraordinary item. Nowadays, things can only be classified as extraor-

dinary items if they are extremely rare.

As the P&L shows, Wingate incurred an extraordinary expense of £6,000

during year five. As Note 7 on page 251 explains, this was due to the

unrecovered portion of a ransom payment. Clearly, this is a pretty rare

occurrence and hopefully will not recur.

Exceptional items

Occasionally, an event will occur in the course of the ordinary activities of

a company that gives rise to an income or expense that has a significant

impact on the accounts. Such items have to be disclosed separately. If the

exceptional item is one of the following, it will be shown on the face of

the P&L:



profits/losses on the sale or termination of an operation



costs of a fundamental reorganisation



profits/losses on disposal of fixed assets

All other exceptional items are set out in the notes to the accounts,

except where it is considered necessary to show them on the face of the

P&L in order to give a true and fair view of the year’s profit/loss.

Wingate had no exceptional items in either of years four or five. To give

you an example, however, if the profit on the sale of the fixed assets had

been larger, this would have been disclosed as an exceptional item.

Dividends

A company can pay a dividend to its shareholders as often as it likes, sub-

ject to a legal restriction. The legal restriction is, broadly speaking, that

a company’s retained profit must always be greater than zero. Thus, if

paying a dividend would take the retained profit below zero, the company

cannot legally pay the dividend.