IB BM – 3.4 Final Accounts (P&L + Balance Sheet)

Welcome to 3.4 Final Accounts

This interactive workbook focuses only on the profit & loss account (income statement) and balance sheet (statement of financial position).

Step 1: Use 3.4 Overview for the big picture.
Step 2: Explore the structure of the profit & loss account and balance sheet.
Step 3: Complete the 3 practice P&Ls and 3 practice balance sheets.
Step 4: Lock in the language using the Flashcard studio.
Step 5: Take the 30-question quiz and review explanations.

Exam link This topic feeds directly into data-response and calculation questions in Papers 1 and 2. Being able to “see” the accounts structure in your head is a huge advantage.

You can jump to any section from the navigation on the left.

3.4 Overview – Why final accounts matter

Turning raw transactions into useful information for decision-making.

Final accounts summarise the financial performance and position of a business at the end of a period. For IB BM, you must be comfortable with:

Profit & loss account (income statement): performance over a period.
Balance sheet (statement of financial position): financial position at a point in time.

Quick check: Which statement is correct?

Exam tip Always state the time dimension in definitions: income statements are “for the year ended…”, balance sheets are “as at… (date)”.

Profit & loss account – Structure

From sales to retained profit.

Revenue COGS & gross profit Expenses & net profit

Typical format (simplified)

Sales revenue
Less: Cost of goods sold (COGS)
= Gross profit
Less: Overheads / expenses
= Net profit before interest and tax
Less: Interest
= Net profit before tax
Less: Tax
= Net profit after tax
Less: Dividends
= Retained profit

Quick check 1: Gross profit is calculated as:

Quick check 2: Retained profit is:

Quick check 3: Which item affects gross profit but not net profit margin directly?

Quick check 4: Which of the following is usually treated as an overhead (expense), not COGS?

Quick check 5: Why do exam questions often show a line for “net profit before interest and tax”?

Exam tip In data questions, label your workings clearly: show revenue, COGS, gross profit and each step down to retained profit.

Balance sheet – Structure

What the business owns and owes on one date.

Assets Liabilities Equity

Key categories

Non-current assets: used for more than one year (machinery, buildings).
Current assets: expected to be turned into cash within one year (inventory, debtors, cash).
Current liabilities: debts due within one year (overdraft, creditors).
Non-current liabilities: long-term debts (bank loans, debentures).
Equity: share capital + retained profit (and other reserves).

Quick check 1: Which item is a current asset?

Quick check 2: Working capital is calculated as:

Quick check 3: “Borrowings – long-term” on the IB format balance sheet is classified as:

Quick check 4: Which pair are both equity items?

Quick check 5: If total assets are $500 000 and total liabilities are $320 000, which statement is correct?

Exam tip Remember the balance sheet must balance: Net assets = equity. Use this to check your own calculations.

Practice – Constructing a profit & loss account

Use the data for each business to calculate and enter the full profit & loss account.

Practice – Constructing a balance sheet

Use the data for each business to complete the balance sheet “as at” the given date.

Flashcard studio – Final accounts language

Flip cards to move between term and definition. Filter by category to target P&L or balance sheet.

End-of-topic quiz – 3.4 Final accounts (30 questions)

Questions progress from basic definitions to applied calculations and evaluation. Every question has a short explanation.