Accounting Flashcards
accounting
definition and outcomes
the process of identifying, measuring, recording and communciationg the required information relating to current events of an organisation
planning and decision making
collection and recording of financial data
main objectives of accounting
making a profit, increasing market share, fulfil market need and social need
equation
profit
revenue - cost
market share
proportion of sales belonging to a business out of total industry sales
percentage figure
stakeholder
person or organisation with an interst in the performance of business AND can affect operations
goal of the accounting process
to turn financial data into financial information
process of accounting process
collecting,recording, preparing and providing
documents – records – reports – advice
so basically accounting process is
collecting, recording, preparingl, providing
types of reports
- statement of receipts and payments
- income statement
- balance sheet
statement of receipts and payments
lists cash receipts and payments during a reporting period, the change in bank balance and the opening and closing bank balances.
surplus and deficits
surplus/deficit
the overall change in bank balance
income statement
calculates profit （revenue and expenses)
whats the proft formula?
balance sheet
reports what a business owes and owns. equities and assets
equities
2 types
liabilities and owner’s equity
liabilities
what you OWE. current and noncurrent
owners equity
the residual interest in the assets of the entity after deducting all its liabilities
capital, drawings, net profit
asset
a present economic resource controlled by the business that has potential to generate future economic benefit. current and noncurrent
why do we split liabilites and assets into current and noncurrent
to make better decisions and to prioritise
accounts receivable
customers who owe the business money – current asset
accounts payable
suppliers of a business who are owed money – current liability
what will an analysis of business performance include?
2 things
profitability and liquidity
profitability
the ability of the business to earna profit, measured by comparing its profit against a base (sales, assests, owner’s equity)
basically the earning of profit
liquidity
the ability of the business to meet its short-term debts as they fall due
basically the paying back of debts
benchmarks
2 tools to assess performance
trends and variances
trends
where changes over several periods form a pattern
variances
compares the acual figures against the budgeted or expected figures to identify areas in which performace has been below
bank overdraft
an external source of finance provided by a bank allowing bank holder to withdraw more than their current balance
bank
the sum of all cash on-site in a business and the amount in their bank account
capital
the assets contributed to the business by the owner
drawings
money/assets withdrawn by the owner for their own personal use
what is the net profit margin
the percentage of profit in all the sales
formula for net profit margin
(net profit/net sales)x 100
what is the gross profit margin
the percentage of each dollar of revenue that is kept as profit
what does the size of the GPM indicate?
the size of the gap between selling and cost prices
formula for gross profit margin
(gross profit/net sales) x 100
what happens if the gap (percent) of GPM increases?
the business will make more profit per sale, but this doesn’t mean more profit overall
types of non current liabilities
loans, mortgage
both are also current
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types of current liabilities
bank (overdraft), accounts payable
types of current assets
bank, inventory, accounts receivable
