2- Double-entry bookkeeping - introduction

Question 1

Sole trader

Answer 1

Organisations that are owned & operated by one person.

Question 2

Partnership

Answer 2

These are organisations owned by 2 or more persons working in common with a view to making a profit.

Question 3

Company

Answer 3

These are organisations recognised in law as ‘persons’ in their own right. A company may own assets & incur liabilities in its own name. The accounting of these organisations must meet certain minimum obligations imposed by legislation.

Question 4

Management accounts

Answer 4

Usually prepared on a monthly basis to present timely financial & statistical info to business managers. This info helps managers to run the business more effectively, making day-to-day & short-term decisions.

Question 5

Financial accounts

Answer 5

These are prepared annually, mainly for the benefit of people outside the management, such as the owners of the business, HMRC, banks, customers, suppliers & the government.

Question 6

What are the 2 main financial statements?

Answer 6

1. The statement of profit or loss
2. The statement of financial position

Question 7

The statement of profit or loss

Answer 7

This is a summary of the businesses transactions (income & expenses) for a given period.

Question 8

The statement of financial position

Answer 8

This is a statement of the assets & liabilities of the business at a given date. This date is the end of the period covered by the statement of profit or loss.

Question 9

Sales revenue

Answer 9

Income generated from the trading activities of the business.

Question 10

Cost of sales

Answer 10

The cost of buying or producing the goods for resale.

Question 11

Gross profit

Answer 11

The profit remaining, after the cost of sales have been deducted from sales revenue.

Question 12

Sundry income

Answer 12

Other types of income that aren’t generated by the primary trading activities of the business.