1: Introuction to Accounting

Question 1

What can a set of accounts be used to determine? (2)

Answer 1

• Whether or not the business is profitable

- If a business can meet its debts as they fall due

Question 2

Who are the main users of the financial accounts? (6)

Answer 2

• Owner
• Employees
• HMRC
• Government
• Suppliers
• Consumers

Question 3

A business must maintain financial records for all business transactions. These records must be 1. _____ and 2. _____

Answer 3

1. Complete

2. Accurate

Question 4

Describe the general structure of a PNL

Answer 4

Sales

Cost of goods sold:

• Opening stock
• Purchases
• Less: Closing stock

Gross profit

Sundry income
Discounts received

Less: Expenses

Net profit

Question 5

Which is known as a ‘snapshot at a single point in time’?

Answer 5

Balance sheet

Question 6

Define the aspects of a sole trader (2)

Answer 6

• Business and personal affairs are not distinguished in any way.
• If debts fall due that the earnings from a business cannot cover for, creditors can require payment from the sole trader’s personal assets (e.g. house)

Question 7

Define the aspects of a partnership (3) (think about sole trader)

Answer 7

• 2 or more persons associated for the purpose of the business or profession
• Business and personal affairs are not distiguished in any way
• If debts fall due that the earnings from the business cannot cover, creditors can require payment from the partner’s personal belongings.

Question 8

A company is a ___, ____ person

Answer 8

Distinct, legal

Question 9

What business medium relates to this?

“The members are not ‘shareholders’ but their liability to contribute to the debts of the business is limited to its assets”

Answer 9

Limited liable partnership

Question 10

Which business mediums are unincorporated?

Answer 10

sole traders and partnerships

Question 11

Which TWO types of the following organisations are separate legal entities from the people who
operate them?

Answer 11

Sole traders and partnerships

Question 12

What is the main purpose of the balance sheet? (think simple)

Answer 12

To show the assets and liabilities of a business

Question 13

What should an accounting system enable users to determine?

Answer 13

• Whether the business is operating at a profit or loss

- Whether the business can meet debts as they fall due