Accounting Flashcards
What are responsibilities of an accountant?
They are responsible for the preparation of financial statements such as IS and SOFP. They also check financial statements to see if they’re accurate and provide advice. They also produce budgets.
What is management accounting?
Focuses on planning, control and decision making. Prepared for internal use.
What is financial accounting?
Focuses on using historical information to prepare financial statements, such as:
1) IS
2) SOFP
3) statement of cash flows
4) annual report
What are bookkeepers?
They are responsible for recording day to day business transactions. They maintain accounting records, enter transactions into the books of prime entry and ledgers, and check accuracy of accounting records. They may also provide a trial balance.
What are the 3 types of ownership of an organisation?
Sole trader, limited company and partnership
What is a sole trader? Advantages? Disadvantages?
A sole trader is a business owned by one person.
Advantages- owner keeps all profit, they make all decisions, it is quicker to set up, the financial statements can be kept private
Disadvantages- owner is only source of capital, owner works a lot, could lose money if unable to work, unlimited liability
What is a partnership? Advantages? Disadvantages?
A partnership is a business that is jointly owned by more than one person.
Advantages- more sources of capital, shared workload, partners can specialise, quicker and cheaper than ltd company, the financial statements can be kept private
Disadvantages- profits have to be shared, disagreements can occur, partners share unlimited liability
What is a limited company? Advantages? Disadvantages?
A separate legal entity, owned by a minimum of 2 share holders, controlled by directors, profits are payed in the form of dividends.
Advantages- more capital, limited liability
Disadvantages- longer and more expensive to set up, profits shared, financial statements are public for plcs
What is the difference between public and private limited companies?
Private- cant sell shares on stock market
Public- can sell shares on the stock market
What are the advantages and disadvantages of a plc ( public limited company)?
Advantages- large amount of capital, used to expand business instead of bank loan, leads to higher profit
Disadvantages- profits shared between more share holders, more paperwork and annual cost, financial statements shared to public
What is owners capital? Advantages? Disadvantages?
Money introduced by the existing owner of the business.
+ : no interest or repayment, no loss of control of business
- : may not be enough cash available from owner, it is slow money so could miss out on profitable opportunities
What is partners capital? Advantages? Disadvantages?
Could be changing from a sole trader to partnership or adding a new partner to an existing partnership to contribute more capital.
+ : no interest or repayments
- : new partner gets a share of profit, may not be able to find partner with required capital
What is Share capital / ordinary shares ? Advantages? Disadvantages?
Money invested by share holders. This is only for limited companies.
+ : no interest or repayments
- : more dividends paid, profits shared further
What are debentures? Advantages? Disadvantages?
They are long term loans. They are an external source of finance.
+ : no loss of control, repayment is due over several years
- : could be secured on assets, fixed interest, paying all at once can damage cash flow
What is a bank loan? Advantages? Disadvantages?
A long-term fixed amount that must be repaid
+ : no further repayments required (like dividends), no loss of ownership, no large lump sum
- : interest, security needed, repayments must be made
