IB Business Management HL topic guide

Finance and Accounts

Finance and Accounts is a core part of IB Business Management HL. This guide connects the syllabus ideas behind Sources of Finance, Costs and Revenues, Break-even Analysis, Final Accounts, Final Accounts — HL Extensions and 6 more units, shows how they appear in worked problems, and points you to the formulas and full lessons needed for exam revision.

What you will learn

Finance and Accounts syllabus outline

The units below follow the structure used in the full Study to Learn course. Use the outline to identify exactly which idea needs attention, then work through the public example before continuing to the complete lesson path.

3.1

Sources of Finance

Internal and External Sources of Finance · Evaluating Finance Sources — The Cost, Control, Risk Framework

3.2

Costs and Revenues

Fixed, Variable Costs and Contribution · Contribution Analysis and Special Order Decisions

3.3

Break-even Analysis

Break-even Point and Margin of Safety · Using Break-even Analysis for Strategic "What If" Decisions

3.4

Final Accounts

The Income Statement and Statement of Financial Position · Interpreting Final Accounts — Profit Quality and Window Dressing

3.4 (AHL)

Final Accounts — HL Extensions

Depreciation and Inventory Valuation · Comparing FIFO and AVCO — Impact on Profit and Tax

3.5

Profitability and Liquidity Ratio Analysis

Profitability and Liquidity Ratios · Ratio Analysis in Context — Industry Benchmarks and Trend Analysis

3.6

Efficiency Ratio Analysis

Inventory Turnover, Debtor/Creditor Days and Gearing · Insolvency and the Gearing-Liquidity Link

3.7

Cash Flow

Cash Flow Forecasts and Managing Cash Flow · Cash Flow vs Profit — The Working Capital Cycle

3.8

Investment Appraisal

Payback Period and Average Rate of Return · Non-Financial Factors in Investment Decisions

3.8 (AHL)

Investment Appraisal — Net Present Value

Net Present Value (NPV) · Choosing a Discount Rate — The Most Important Judgement in NPV

3.9

Budgets

Types of Budgets and Variance Analysis · Zero-Based vs Incremental Budgeting in Practice

Free worked preview

Depreciation and Inventory Valuation

This complete preview comes from the Final Accounts — HL Extensions unit. It introduces the core language, shows the method in context, and gives you a real example of the lesson quality before you create an account.

Depreciation

When a business buys a machine for $50,000, it does not expense the full amount in year one — it spreads the cost over the asset's useful life. This HL subtopic explains the allocation mechanics and the critical exam distinction: depreciation is a non-cash expense. After this lesson, you will be able to calculate annual depreciation using both straight-line and units-of-production methods, and explain that the cash left the business when the asset was purchased — not when the depreciation is recorded on the income statement.
Straight-Line Depreciation
Annual Depreciation=Cost−Residual ValueUseful Life\text{Annual Depreciation} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}}

Spreads the same dollar amount of depreciation evenly across every year of the asset's useful life.

Units of Production Depreciation
Depreciation per Unit=Cost−Residual ValueTotal Expected Units\text{Depreciation per Unit} = \frac{\text{Cost} - \text{Residual Value}}{\text{Total Expected Units}}

Links depreciation directly to actual usage — an asset used more heavily in a given year is depreciated more that year.

Inventory Valuation

The same set of purchase invoices can produce different reported profits depending on whether a business assumes it sold the oldest inventory first (FIFO) or valued everything at average cost (AVCO). After this lesson, you will be able to calculate closing inventory value and COGS under both FIFO and AVCO, and explain why — in a period of rising prices — FIFO reports higher profit and higher tax than AVCO despite identical physical inventory and cash flows.
FIFO vs AVCO

FIFO (First In, First Out) assumes the oldest inventory is sold first. AVCO (Average Cost) values inventory at a recalculated average cost after each purchase. In periods of rising prices, FIFO tends to show a higher closing inventory value (and higher profit) than AVCO.

Common ErrorDepreciation is an accounting allocation of an asset's cost over time — it does not represent actual cash leaving the business in that year (the cash was spent when the asset was purchased).
Worked Example Equipment costs $50,000, has a residual value of $5,000, and a useful life of 5 years. Find the annual straight-line depreciation.
1Apply the straight-line formulaAnnual Depreciation=50000−50005\text{Annual Depreciation} = \frac{50000-5000}{5}
2Simplify 50000 − 5000Annual Depreciation=450005\text{Annual Depreciation} = \frac{45000}{5}
Annual Depreciation=$9,000 per year\text{Annual Depreciation} = \$9{,}000\text{ per year}
Practice QuestionA machine costs $40,000, has a residual value of $4,000, and is expected to produce 90,000 units over its life. Find the depreciation per unit, and the depreciation charge for a year in which it produces 12,000 units.

Use the formulas

Keep the formula sheet beside you

Revision becomes faster when you practise locating the right equation and understand what every variable means. The full reference is public and searchable on any device.

Open IB Business Management HL Formula Sheet →

Reviewed by the Study to Learn editorial team · Updated 2026-07-24