Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business > 3.4 Frinancial Accounts > Flashcards

3.4 Frinancial Accounts Flashcards

1
Q

What is the purpose of final accounts?

A

To keep records of financial statements and assist managers in financial control and planning.

Final accounts help ensure that all payments and receipts of a business are officially accounted for.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the components of financial accounts?

A

Profit and loss account, balance sheet.

Financial accounts provide a snapshot of a firm’s financial situation and performance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define ‘final accounts’.

A

Published annual financial statements that limited liability companies are legally required to report.

These include the balance sheet and profit and loss account.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the profit and loss account?

A

A financial record of a firm’s trading activities over the past 12 months, showing all revenues and costs.

The main purpose is to show the value of profit or loss for the business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What does the balance sheet contain?

A

Financial information about an organization’s assets, liabilities, and capital invested by the owner.

It provides a snapshot of the firm’s financial situation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is a legal requirement concerning final accounts?

A

Companies must have final accounts audited by independent chartered accountants.

This ensures the financial statements are accurate and truthful.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Who uses final accounts and for what purpose?

A

Internal stakeholders use them for business management and strategic decision-making; external stakeholders use them for evaluating the firm’s ability to pay suppliers and repay finances.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is profit?

A

The surplus that a business earns after all expenses have been paid from the firm’s gross profit.

Profit creates an incentive for the business to perform well.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the formula for calculating net income?

A

Net Income = Revenue - Expenses.

It represents the money remaining after all costs have been deducted.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

List the three sections of the statement of profit.

A
  • Trading account
  • Profit & loss account
  • Appropriation account
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Define ‘expenses’.

A

Any money that is credited in producing revenue.

Expenses are subtracted from income to determine net income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is gross profit?

A

The difference between sales revenue and direct costs of producing sold goods.

Gross profit = Sales revenue - Cost of goods sold.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Define ‘cost of goods sold’ (COGS).

A

The direct costs of producing or purchasing the stock that has been sold.

COGS = Opening stock + Purchases - Closing stock.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What does ‘opening stock’ refer to?

A

Inventory at the beginning of the accounting period.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What does ‘closing stock’ refer to?

A

Inventory at the end of the accounting period.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Fill in the blank: Gross profit is calculated by _______.

A

Sales revenue - Cost of goods sold.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

True or False: Final accounts are optional for limited liability companies.

A

False.

They are legally required.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What does a profit and loss account show?

A

Net profit (or loss) of a business at the end of a trading period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How is net profit calculated?

A

Net Profit = Financial surplus from sales revenue after all costs and expenses are accounted for

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the formula for gross profit before interest and tax?

A

Gross profit before interest and tax = Gross profit - Expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is net profit before tax?

A

Net profit before tax = Net profit before interest and tax - Interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is the relationship between gross profit and expenses?

A

Net profit = Gross profit - Expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is net profit after interest and tax?

A

Net profit after interest and tax = Net profit before tax - Corporation tax expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are some examples of expenses that can reduce net profit?

A
  • Rent
  • Utility bills
  • Other overheads
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is the definition of expenses in the context of a profit statement?

A

Costs incurred by a company to generate revenue

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is the cost of goods sold (COGS)?

A

The direct costs attributable to the production of the goods sold by a company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is the appropriations account?

A

It shows how net profit after interest and tax is distributed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

How is net profit typically distributed according to the appropriations account?

A
  • Dividends
  • Retained profit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What are dividends?

A

Payments made to shareholders from the company’s profits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What is retained profit?

A

Amount of profit after interest, tax, and dividends have been paid, reinvested in the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What term is used for retained profit in non-profit organizations?

A

Retained surplus

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

How is retained profit recorded on the balance sheet?

A

Recorded as ‘retained earnings’

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What is the format of a profit and loss account for a profit-making organization?

A

Statement of profit or loss includes sales revenue, cost of sales, gross profit, and expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Fill in the blank: The formula for calculating gross profit is _______.

A

Sales revenue - Cost of sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

True or False: Non-profit organizations use the term ‘retained profit’.

A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What is the surplus before interest and tax in a non-profit organization’s profit statement?

A

Gross surplus - Expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What does the profit for the period represent in a profit-making organization?

A

Net profit after all expenses, interest, and tax have been deducted

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

What is the retained surplus for a non-profit organization?

A

The surplus for the period after all expenses and distributions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

What is the total sales revenue for Florists-R-Us for the year ended 31 December 2020?

A

460,000

This figure represents the income generated from sales before any costs are deducted.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

What is the cost of sales for Florists-R-Us for the year ended 31 December 2020?

A

(230,000)

This amount reflects the direct costs attributable to the production of the goods sold.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

What is the gross profit for Florists-R-Us for the year ended 31 December 2020?

A

230,000

Gross profit is calculated as sales revenue minus cost of sales.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

What is the profit before interest and tax for Head to Toe Wellbeing Limited for the year ended 31 December 2022?

A

(165,000)

This figure indicates the company’s profitability before accounting for interest and tax expenses.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

What is the tax percentage applied in the profit and loss account?

A

10%

This percentage is used to calculate the tax owed based on the profit before tax.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

What is the profit after interest and tax for Head to Toe Wellbeing Limited?

A

49,500

This amount represents the net earnings after all expenses have been deducted.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

What percentage of the profit is distributed as dividends?

A

30%

Dividends are payments made to shareholders from the company’s profits.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

What is retained profit for Head to Toe Wellbeing Limited?

A

34,650

Retained profit refers to the portion of profit that is kept in the company rather than distributed as dividends.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

True or False: The Statement of Profit or Loss guarantees future performance based on past results.

A

False

Historical financial performance does not ensure future results.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

What is window dressing in accounting?

A

The legal act of creative accounting by manipulating financial data

This practice is used to present a more favorable view of a company’s financial position.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

List the stakeholders interested in the Statement of Profit or Loss.

A
  • Shareholders
  • Employees
  • Managers & Directors
  • Suppliers
  • Government
  • Local Community

Each stakeholder group has different interests in the financial information provided.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

What is the purpose of the balance sheet?

A

To show the financial position of an organization, including assets, liabilities, and capital invested by owners

It provides a snapshot of the company’s financial status at a specific point in time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

What does net assets represent?

A

The value of the business calculated by subtracting liabilities from assets

This figure must match the equity of the business in the balance sheet.

52
Q

Fill in the blank: The balance sheet is required for auditing purposes for all _______.

A

[limited liabilities companies]

This requirement ensures transparency and accountability in financial reporting.

53
Q

How long are firms required to report balance sheets in many countries?

A

2 years

This common practice allows for comparisons of financial performance over time.

54
Q

What are essential puts in financial terms?

A

O assets, 2 liabilities, 3 equity

55
Q

Define assets.

A

Items of monetary value owned by a business, such as cash, stocks, and property

56
Q

What are the two classifications of assets?

A
  • Non-current assets
  • Current assets
57
Q

What are non-current assets?

A

Items owned by a firm, not intended for sale within 12 months, used to generate revenue

58
Q

What are current assets?

A

Cash or liquid assets likely to be turned into cash within 12 months of balance sheet date

59
Q

Give examples of current assets.

A
  • Cash
  • Debtors
  • Stocks
60
Q

What are debtors?

A

People or entities that owe money to the firm for goods purchased on credit

61
Q

How are stocks defined in a business context?

A

Unsold supplies of raw materials, semi-finished goods, and finished goods

62
Q

True or False: Finished stocks are less liquid compared to raw materials.

A

False

63
Q

Define liabilities.

A

Legal obligations of a firm to repay lenders or suppliers

64
Q

What are the two classifications of liabilities?

A
  • Current liabilities
  • Non-current liabilities
65
Q

What are current liabilities?

A

Debts that must be settled within 1 year of balance sheet date

66
Q

List examples of current liabilities.

A
  • Bank overdrafts
  • Trade creditors
  • Short-term loans
67
Q

What are non-current liabilities?

A

Debts owed by a firm expected to take longer than 1 year to repay

68
Q

Provide examples of non-current liabilities.

A
  • Mortgages
  • Bank loans
  • Bonds
69
Q

What is net balance in financial terms?

A

Assets = (Non-current assets + Current assets) - (Non-current liabilities + Current liabilities)

70
Q

What is the formula for net assets?

A

Net assets = Total assets - Total liabilities

71
Q

What does total equity represent?

A

Value of business belonging to owners, including share capital and retained earnings

72
Q

What are retained earnings?

A

Total profits retained in the business after dividends have been paid

73
Q

True or False: Equity shows how the net assets of a business are funded.

A

True

74
Q

What is the purpose of the statement of financial position?

A

To show the asset structure of the business and the financial position at a given point in time

75
Q

How do shareholders use the balance sheet?

A

To assess their investment’s growth and the asset structure of the business

76
Q

What do managers and directors use the balance sheet for?

A

To assess the financial position of the business and guide decisions on capital structure

77
Q

What questions might employees ask regarding the balance sheet?

A
  • Is the business financially stable?
  • Has performance improved or worsened?
  • What is the business spending its money on?
78
Q

Fill in the blank: Total equity is the sum of _______ and _______.

A

[share capital], [retained earnings]

79
Q

What is a sole trader?

A

A sole trader is an individual who owns and operates a business independently.

80
Q

What is the key difference between a sole trader and a limited liability company?

A

A sole trader has unlimited liability, while a limited liability company limits the owner’s personal liability.

81
Q

What is a balance sheet?

A

A balance sheet is a financial statement that summarizes a company’s assets, liabilities, and equity at a specific point in time.

82
Q

What are the sources of finance for a sole trader?

A

Sources of finance include owner’s equity and capital.

83
Q

What does ‘dividends’ refer to in the context of a sole trader?

A

Dividends do not appear under current liabilities for a sole trader.

84
Q

True or False: A balance sheet remains static and does not change over time.

A

False.

85
Q

What are some disadvantages of a balance sheet?

A
  • Financial position may differ in subsequent periods
  • Capital value can change daily
  • Figures are estimates
  • No universal format for comparison
  • Not all assets are recorded
86
Q

Define intangible assets.

A

Intangible assets are noncurrent assets that do not exist in physical form but have monetary value.

87
Q

List the main types of intangible assets.

A
  • Branding
  • Patents
  • Copyrights
  • Goodwill
  • Registered trademarks
88
Q

What is branding?

A

Branding involves brand recognition and value that drives global sales.

89
Q

What are patents?

A

Patents provide legal protection for inventors, preventing others from using their ideas for a fixed number of years.

90
Q

What do copyrights protect?

A

Copyrights protect original artistic works created by the author.

91
Q

What is goodwill in business?

A

Goodwill is an intangible asset that reflects the value of a firm’s reputation and customer relationships.

92
Q

What are registered trademarks?

A

Registered trademarks are distinctive signs identifying a brand, product, or business entity, protected by law.

93
Q

Fill in the blank: Intangible assets account for a large part of a firm’s _______.

A

asset value.

94
Q

True or False: The true market value of non-current assets is known once sold.

A

True.

95
Q

What is a major challenge in valuing goodwill?

A

Goodwill can be subjective and difficult to place a value on.

96
Q

Why are intangible assets not always recorded on the balance sheet?

A

Because it is hard to measure their value

Intangible assets may lead to ‘window dressing’ if included on financial statements.

97
Q

What is a limitation of using single year accounts in financial analysis?

A

It does not allow for a series comparison of financial performance

A series of final accounts provides a better analysis.

98
Q

What human resources factors are often ignored in financial analysis?

A

Skills, loyalty, goodwill, and motivation

These qualitative factors can significantly impact financial performance.

99
Q

What qualitative factors are not shown in final accounts?

A

Culture, contributions to the local community, and ethical objectives

These factors can influence financial performance but are not quantifiable.

100
Q

True or False: Financial accounts are fully honest and transparent.

A

False

Firms may limit financial information that goes public.

101
Q

What does depreciation refer to?

A

The fall in value of non-current assets over time

Depreciation is caused by wear and tear or obsolescence.

102
Q

What is appreciation in the context of non-current assets?

A

An increase in the value of non-current assets

This can apply to property or land.

103
Q

List the causes of depreciation.

A
  • Wear and tear
  • Obsolescence
  • Changes in market demand

Both physical deterioration and technological advancements can lead to depreciation.

104
Q

What is the purpose of recording depreciation?

A
  • To calculate the value of a business more accurately
  • To reflect the realistic value of non-current assets over time
  • To plan for future replacement of assets

Accurate depreciation helps in financial planning and assessment.

105
Q

What is historic cost?

A

The purchase cost of a particular fixed asset

Historic cost is used in the calculation of depreciation.

106
Q

Fill in the blank: Depreciation spreads historic costs over the _______ of fixed assets.

A

useful lifespan

This method allows for a more accurate representation of asset value.

107
Q

What is the straight-line method of depreciation?

A

A method that reduces the value of non-current assets by a fixed amount each year

This method assumes a consistent usage of the asset over its useful life.

108
Q

What is the formula for annual depreciation using the straight-line method?

A

Annual depreciation = (Purchase cost - Scrap value) / Useful life

Scrap value is the worth of the asset at the end of its useful life.

109
Q

What are the three variables that affect annual depreciation?

A
  • Purchase cost
  • Useful life
  • Scrap value

Purchase cost is the initial cost of the noncurrent asset.

110
Q

What is the historic cost in the context of noncurrent assets?

A

Historic cost is the purchase cost of a noncurrent asset.

This is the original value paid for the asset.

111
Q

What is one advantage of the straight-line method of depreciation?

A

Simple to calculate and understand.

It provides a consistent expense amount each period.

112
Q

What is one disadvantage of the straight-line method of depreciation?

A

Doesn’t consider loss of efficiency or higher repair costs over time.

It assumes the asset depreciates evenly over time.

113
Q

What is the units of production method?

A

A method of calculating depreciation that allocates equal amounts of depreciation to each unit of output rendered by the noncurrent asset.

This method is based on usage rather than time.

114
Q

How do you calculate depreciation per unit in the units of production method?

A

Depreciation per unit = (Purchase cost - Scrap value) / Expected number of units over life span.

This reflects the asset’s usage rather than a fixed time period.

115
Q

What is the disadvantage of the units of production method?

A

More cumbersome, as it requires calculating depreciation for each time period based on output.

It can complicate accounting processes.

116
Q

What is one advantage of the units of production method?

A

Provides better insight into the running cost of noncurrent assets.

It adjusts the calculation based on actual usage.

117
Q

True or False: Some firms may set the scrap/residual value of fixed assets to zero.

A

True

This is often unrealistic as assets typically retain some value.

118
Q

What ethical considerations are important in financial disclosures?

A

They reveal the financial health and profitability of a firm.

Ethical practices help prevent ‘window dressing’ in financial statements.

119
Q

What is creativity in a business context?

A

The ability to develop new ideas and solutions

Creativity is essential for innovation and growth in businesses.

120
Q

What is a balance sheet used for?

A

To assess a business’s financial position and attract funding for growth

A balance sheet provides a snapshot of assets, liabilities, and equity.

121
Q

What is a common strategy for businesses seeking external funding?

A

Developing intellectual property rights

Intellectual property can enhance a company’s value and competitive edge.

122
Q

What does creating new products contribute to?

A

Long-term sustainability and growth of the business

New product development is critical for staying relevant in the market.

123
Q

True or False: Legal protection of intellectual property increases a firm’s value.

A

True

Legal protection helps secure a company’s innovations and market position.

124
Q

Fill in the blank: A balance sheet is used for businesses wanting to seek _______.

A

external funding

External funding can come from various sources, including investors and loans.

125
Q

What is the importance of intellectual property (IP) for new products?

A

It provides legal protection and increases firm value in turbulent markets

IP rights can deter competitors and enhance market position.

Business (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions