Accounting Flashcards
Why should you keep accounts?
Companies keep accounts for a number of reasons:
- To keep track of money coming in and out so they know they can pay their bills
- to monitor profit and loss
- use the information for future business planning
- use the information to highlight potential problem areas so they can be investigated
- So they can submit annual financial statements to companies house
What is the difference between management and company accounts?
Management accounts are used internally by the managers of the business where financial accounts are company accounts required by law and audited by a chartered accounts.
What is meant by the term gross?
In salary terms, gross is the total salary before any deductions are made
What is meant by the term net?
In salary terms, Net salary is the gross salary minus tac and other deduction such as pensions, NI etc. the net cannot get lower.
What is a balance Sheet
A balance sheet is a snap shot statement showing a businesses financial position at a point in time. It shows assets and liabilities at a given time, telling you how much the company owes and owns.
What is an asset?
Assets are things the business owns that you get a future benefit from. e.g. property
What are the two types of assets and what are they?
Current Assets - are assets to be used within 1 year
Non-current Assets - also known as fixed assets are things such as machinery, plant etc.
What are liabilities?
Amount a business owes due to past transactions e.g. wages and loans
What is a profit and loss account?
A summary of businesses income and expenditure, usually prepared on a quarterly or annual basis.
What is revenue?
Income the business received from its business activities e.g. money from thing it sells
What are expenses?
Outgoings that arise from a business performing its activities, e.g. petrol
What is meant by depreciation?
This is the systematic reduction in the recorded cost of a fixed asset.
What is a sole trader?
A person who is the exclusive owner of a business, entitled to keep all profits after tax is paid but had unlimited liability so is liable for all losses.
What is a partnership?
This is where two or more people manage and operate a business, they are both equally liable for the debts.
What is a limited company?
It is a legal structure that means that the liability of company shareholders is limited to their stake in the company. There are Private limited companies and public limited companies, which are distinguished primarily by the way there shares can be sold. Public limited companies can sell shares on the stock market, whilst private limited cannot.
